Blast from the past...

I used to work for a company helping director’s of insolvent companies claim redundancy pay from the government. I used to look at the market data and see what was happening, and haven't looked at it in a while, so thought I'd take a look again...

Where do we start…

2014 to 2019: Pre-Pandemic Period

During these years, the UK experienced relatively stable insolvency rates. The economy was recovering from the 2008 financial crisis, and insolvency numbers were generally lower compared to the crisis peak. For instance, the insolvency rate during the 2008–09 recession peaked at 113.1 per 10,000 companies, significantly higher than in subsequent years. (source)

2020 to 2021: Impact of the COVID-19 Pandemic

The onset of the pandemic led to unprecedented economic challenges. However, government support measures, such as loans and temporary insolvency reliefs, resulted in a notable decrease in insolvency numbers during this period. These interventions provided businesses with the necessary support to navigate the immediate economic downturn. (source)

2022 to 2024: Post-Pandemic Adjustments

As government support measures were withdrawn and economic conditions shifted, insolvency numbers began to rise. In 2023, the number of firms going bust reached a 30-year high, with compulsory liquidations increasing by 44% to 2,827. Despite this increase, the insolvency rate remained lower than the peak during the 2008–09 recession, partly due to the overall growth in the number of registered companies. (source)

By 2024, insolvency rates continued to climb, influenced by factors such as high interest rates, inflation, and the cumulative impact of the pandemic. In June 2024, England and Wales recorded 2,361 company insolvencies, marking a 17% increase from the previous year and the second-highest number since 2009. (source)

Overall, the graph reflects a dynamic insolvency landscape in the UK over the past decade, shaped by economic cycles, external shocks like the pandemic, and the corresponding policy responses.

How do we compare internationally?

The graph comparing insolvency trends between the UK, the US, and Spain from 2014 to 2023 reveals distinct patterns, shaped by their respective economic environments and policies. Here’s an analysis supported by relevant sources:

General Trends of Spain and the US…

US

• Pre-Pandemic (2014–2019): The US experienced a consistent decline in insolvency numbers.
• Pandemic Years (2020–2021): There was a significant drop in insolvencies, attributed to extensive fiscal stimulus measures.
• Post-Pandemic (2022–2023): Insolvency numbers began to rise. Projections indicated a 28% year-over-year increase in business insolvencies for 2024. (Source 1 / Source 2)

Spain (Red Line):

• Pre-Pandemic (2014–2019): Spain maintained the lowest insolvency numbers among the three countries, with a gradual decline.
• Pandemic Years (2020–2021): There was a slight dip in insolvencies.
• Post-Pandemic (2022–2023): A modest rise in insolvency numbers was observed. Projections for 2024 anticipated a 28% year-over-year increase in business insolvencies. (Source 1 / Source 2)

Factors Influencing Trends

Economic Structure:

• US: A larger, more entrepreneurial economy, which may explain the higher absolute numbers of insolvencies pre-pandemic.
• UK: A service-dominated economy that faced significant pressures during and after the pandemic.
• Spain: A high proportion of micro and small businesses, where formal insolvency filings may be less common.

Policy Interventions:

• UK and US: Introduced significant pandemic-era support measures, leading to a temporary decrease in insolvencies.
• Spain: Implemented reforms to its Insolvency Law in 2022, incorporating provisions of Directive (EU) 2019/1023 to provide businesses with an opportunity to implement restructuring plans before insolvency procedures become necessary. (Source)

Post-Pandemic Economic Conditions:

• UK: Faced strong inflationary pressures and higher interest rates, contributing to the insolvency surge.
• US: While also experiencing inflation, showed resilience in its business sector.
• Spain: Numbers reflect a combination of slower economic recovery and structural differences.

Is it all doom and gloom?

Extension of Investment Schemes: The Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) scheme have been extended by ten years to April 2035, supporting start-ups and entrepreneurs in their growth efforts. (Source)

Business Growth Service Launch: The UK government is set to launch the Business Growth Service in the first half of 2025, providing streamlined support to SMEs, making it easier to access advice and resources. (Source)

Positive Economic Growth Forecasts: Analysts project UK GDP growth of 1.5% in 2025, indicating a stable economic environment conducive to business operations. (Source)

Support for SMEs: Over 10,000 owner-managers have enrolled in the UK’s Help to Grow scheme by the end of September 2024, enhancing productivity and growth prospects for small and medium-sized enterprises. (Source)

Support for Start-ups: The British Business Bank has relaunched its growth guarantee scheme, aiming to support 11,000 businesses by March 2026, making finance accessible to underserved SMEs. (Source)