Economy facing squeeze as private sector firms fail
● Surge in limited companies going bust comes as start-up numbers take a hit
economy is facing a “pincer movement” due to the coronavirus pandemic, with a surge in the number of limited companies going bust being mirrored by a drop in new firms setting up, new research suggests.
The Enterprise Research Centre (ERC) said its analysis showed that 61,472 limited companies folded between the start of March and mid-april, with a parallel drop in the numbers of new firms registering with Companies House.
Comparing figures from March 2020 alone with a year earlier, the number of firms going out of business was 70 per cent higher (up 21,206), while the number of new firms incorporated fell by 23 per cent (14,270 fewer).
London saw the biggest absolute rise in numbers of company dissolutions in March, up by 6,431 compared to a year earlier, followed by the West Midlands (2,685), the north-west of England (2,440) and the south-east (2,357). The largest percentage rise was in Wales (up 140 per cent).
Meanwhile, there were notable variations observed among sectors. While all areas saw a rise in the number of dissolutions, transport was hardest hit with nearly three times more firms ceasing to trade. Property/real estate, wholesalers and information services also saw marked increases compared to March 2019.
The ERC said newer companies have borne the brunt of the collapse in economic activity, with 46 per cent of dissolving firms being less than three years old.
Researchers analysed data from the Fame database, which contains information on UK companies registered at Companies House, including some two million active firms.
They said that while the Covid-19 emergency and subsequent lockdown was likely to be a major factor in both the rise in company dissolutions and fall in new incorporations, it was important to note that winding down a limited combritain’s pany could take months. The latest data therefore needed to be seen in the context of an economy that had already seen dampened growth from Brexit uncertainty, researchers added.
Mark Hart, deputy director of the ERC and professor of entrepreneurship at Aston Business School, said: “These stark figures clearly show a significant rise in the number of company dissolutions and a parallel fall in new firm incorporations in a time period that coincides with the arrival of Covid-19 in the UK.
“They suggest our economy is facing a pincer movement of sharply higher business closures and a concurrent lack of new businesses starting due to an understandable fear about what the future holds.
“The Chancellor has unveiled a substantive package of support for UK firms, but we know that many are struggling to access this assistance. If those shortcomings aren’t remedied fast, we’d expect to continue seeing a long, slow decline among the private-sector firms that support millions of jobs across the economy.”