Fuel costs are blamed as insolvency rates rise

The rising cost of energy has been highlighted as a major contributory factor after newly-published figures from the Office for National Statistics, or ONS, showed that a record number of companies went out of business in England and Wales in the three months to the end of June.

Among the worst-hit sectors were manufacturing, accommodation, food, construction, and retail, which between them accounted for more than half of the 5,629 companies that became insolvent in the second quarter, the highest quarterly figure since the third quarter of 2009, when the world was still suffering from the global financial crisis.

The highest ever total was 6,943 in the fourth quarter of 2008, when the crisis had just hit, and the latest figures contrast sharply with the pandemic's lowest monthly figure of fewer than 750 in February 2021.To emphasize the seriousness of the current situation, the speed at which companies are going bust is 46 percent higher than the average quarterly figures for the four years before the pandemic.

The Guardian newspaper reports that 22 percent of businesses said energy costs were their main worry, up from 15 percent in February and for companies with fewer than 50 employees, that figure was as high as 30 percent.

Many companies only survived the pandemic because of economic support measures from the government that have now come to an end, which has made the impact of such steep rises in energy prices all the more painful.

The ONS said rising insolvency rates could be explained partly as a "natural adjustment" after the economic life support of pandemic measures saw insolvency rates fall. Other factors cited by the ONS included difficulties in meeting debt obligations, rising materials costs, and supply chain disruption.

The government has announced support for businesses to try and rein in fuel bills this winter but they will only be in place for six months, and many companies plan and work on a longer-term basis than that.

"Many (businesses) have been struggling to survive the lifting of pandemic government support, as well as high energy prices," Inga West, a restructuring and insolvency counsel at the law firm Ashurst, told The Guardian. "Business confidence is falling. It seems likely to get worse before it gets better."

Rob Turner, energy and resources sector leader at PwC UK, told energy sector website Energy Live News that the current situation needed to be viewed "not just as a short-term crisis but as a medium-term challenge", which would require a change of attitudes and habits all round.

"Forecasts suggest that absent a complete change in Russian supply, tight supplies and thus high and volatile prices, will be a feature well beyond this winter," he continued.

"Firms, therefore, need to engage in short-term coping measures alongside measures to reduce energy use and manage costs over the longer term."