A combination of elevated interest rates and higher business costs resulting from the Budget is set to lead to a spike in insolvencies, Begbies Traynor has warned.
In last month’s Budget, Chancellor Rachel Reeves increased the amount employers have to pay in NICs by 1.2 per cent, and lowered the wage threshold at which employers must start paying the tax from £9,100 to £5,000.
Reeves also announced that the minimum wage would rise by 6.7 per cent next year, a larger rise than many firms had expected.
Since then, some of the UK’s biggest businesses have warned of multi-million pound hits to their businesses as a result of the changes.
Tesco, the UK’s largest private sector employer, has said it is facing a £1bn increase in its national insurance bill, while the British Retail Consortium said that job losses were “inevitable” and prices will rise.
Economists have also warned that the Budget will stoke inflation, forcing the Bank of England to keep interest rates higher for a longer period of time.
Insolvency company Begbies Traynor warned today that this combination of higher interest rates and rising costs will lead to an uptick in insolvencies.
“Additional headwinds for UK business from increased employment costs and the prospect of higher for longer interest rates are likely to extend the period of elevated insolvency levels, increasing the need for advice and support from our insolvency and business recovery professionals,” Ric Traynor, executive chairman of Begbies Traynor, said today.
The warning came alongside a half-year update for the firm, which said that revenue and adjusted profit before tax increased by 16 per cent, and that its guidance for the year remains unchanged.
Analysts at Shore Capital Markets said that this strong growth rate looked set to continue given the level of stress in the UK economy.
“Insolvency volumes are at elevated levels compared to the pre-covid zero interest rate environment. We expect this to be sustained for longer given the impact the UK Oct-24 budget will have on UK businesses. This should be beneficial for Begbies’ business recovery and advisory business,” the analysts said.
However, Begbies was forced to warn that the employers’ NIC increase will also push up its own employment costs by as much as £1.25m a year, adding that it was “reviewing options to mitigate the impact where possible”.