Begbies Traynor, an insolvency firm, showed that 632,700 companies were at significant risk of failure in the three months to September. Almost a third more than the same period last year and 5% more than the previous quarter. The Begbies Traynor Red Flag Alert report, which tracks key financial indicators such as profit retention, interest coverage ratios, and non-current liabilities, revealed the highest level of corporate distress. However, this figure is higher than the levels seen during the 2008 global financial crisis.
UK Businesses, on the other hand, are not protected by the cap. Red Flag warns that energy-intensive companies risk going bankrupt or having to lay off employees if they don’t receive government support. Meanwhile, the government’s proposal is expected to include some support for businesses, but details are still unknown. According to Red Flag, many businesses are having to choose between paying wages and energy bills.
Businesses will not be able to absorb these costs and will very quickly be forced to make a decision about whether they can pay their energy bills. According to the Office for National Statistics, 45% of small businesses in the UK have less than three months of cash reserves. The FSB chief said that around 13%, or 210,000, are in “severe difficulty,” while another 310,000 have only a few weeks left.
That’s a real possibility because they don’t have cash reserves. They have no way of resolving this situation. McTague cited a situation in which a Scarborough hotel owner’s income was wiped out by rising energy costs, five times higher than the average. In fact, they were no longer able to trade without incurring significant losses and therefore damaging the future of their business and everyone who worked for them.
