Gillian Sayburn and Andrew Little of Begbies Traynor in the North East

The North East, like much of the UK, is continuing to see a marked rise in early signs of insolvency year on year according to the latest Red Flag Alert data published today (28 July 2021) by leading business rescue and recovery specialist Begbies Traynor. While the growth of business distress in the region is evident, it is feared that the actual extent of the problems may be even more pronounced, but is currently being artificially suppressed by the Government’s ongoing support measures, together with the pragmatic approach of lenders and HMRC.

Levels of ‘significant’ or early signs of distress in the North East rose by 24% in the second quarter of 2021, compared with the same period the previous year, as revealed by the quarterly Red Flag Alert research which monitors the UK’s financial health. This figure was reflected across the UK as a whole which also saw a 24% rise. In Q2, almost 13,000 businesses in the region and 650,000 businesses across the whole of the UK, felt the impact of this type of distress.

However, the figures also showed some levelling off of financial problems with instances of ‘significant’ distress in the North East falling by 10% since Q1 2021, and again this was in line with the UK-wide picture which also saw a 10% decrease since the previous quarter.

Gillian Sayburn, partner at Begbies Traynor in Newcastle upon Tyne, commented: “While we are concerned to see rising levels of early signs of distress compared with last year, both here and across the UK, it is even more worrying to know that, after 18 months of lockdowns and disruption, the real extent of financial problems is probably worse than these figures indicate.

“Although it appears to be good news that we have not seen the deluge of insolvencies widely expected post-pandemic, the relatively low numbers of business failures in the first six months of 2021 may well hide a picture of growing distress. It seems that the extension of the Government’s Covid support measures, together with a supportive lending environment, are enabling firms to continue to trade, but the underlying financial issues they are storing up are likely to emerge once this supportive environment disappears.”

Fellow partner Andrew Little added: “With the prospect of support programmes such as the Job Retention Scheme starting to be wound down in September, the real scale of distress will soon become evident. Businesses are facing a perfect storm as they struggle to cope with the impact of the pandemic along with the complexities of Brexit, and, in this challenging trading environment, it is vital that directors seek professional advice to plan the best way forward.”

The Red Flag Alert data also shows that in the North East every one of the 22 sectors surveyed once again saw ‘significant’ distress increase year on year. Among those worse affected were utilities (up 38%); real estate and property (37% rise); financial services (34% increase); and wholesale with a 36% uplift. The sector which performed most strongly was food and drug retailers with an increase of just 6%, followed by sports and health clubs, and media, up by 8% and 10% respectively.

In contrast, the North East saw an increase in the number of instances of the more advanced ‘critical’ distress (which refers to businesses that have had winding up petitions or CCJs totalling more than £5,000 against them) compared with the first quarter of the year. This type of distress in the region grew by 5% since Q1 2021, compared with a fall of 10% across the whole of the UK. Looking at the picture year on year, advanced distress fell by 5% in the North East and by 10% across the UK.

Andrew Little continued: “As the country prepares to re-open, it is hoped that the worst of the Covid disruption is now behind us, however, the future remains fraught with risk as we face further waves both in the UK and around the world. With businesses facing the fallout from both the pandemic and Brexit, from shortage of staff to problems with transportation of goods and scarcity of products and materials, they will also have to cope with the added pressures of the cost of staff coming off furlough and the prospect of repaying CBILS.”