Leading audit, tax and consulting firm RSM reacts to the latest IPPR report which highlights more than half of million businesses could be at risk of insolvency if Government support ends in March and April 2021.
Graham Bushby, partner and national head of RSM Restructuring Advisory, said: ‘Whilst we know the unprecedent Government measures have masked the extent of business distress, more than half a million potential insolvencies seems a little exaggerated. However, much lower insolvency activity in 2020 suggests a level of pent up, or delayed insolvency which is waiting to happen in 2021. We predict double the corporate insolvencies in 2021 around 25,000; and sustained 15-20 per cent higher levels than previous years for up to three years.
‘Ahead of the potential cliff edge where businesses will be faced with the furlough, VAT deferral and rate schemes all ending within a few weeks of each other; businesses will be hoping for more targeted support in the forthcoming Budget to help kickstart the economy as restrictions ease. The Government does face a tricky balancing act with record levels of current expenditure; but the much-needed support through the pandemic could be wasted if support ends abruptly this Spring. Equally, any additional new lending could be likewise wasted if businesses fail under a doubly heavy debt burden.
‘High levels of corporate debt highlight a real affordability and cashflow issue for many UK businesses and those companies on the cusp of survival, need to act now which may mean equity investment, longer term loans or some form of restructuring process; but it’s better to go into survival mode now to mitigate future risk.’