The latest figures from Experian®, the global information services company, reveal that during the final quarter of 2011 the payment performance of UK firms saw a small but positive improvement from 26.17 days in Q3 2011 to 25.97 days, with the biggest improvements coming from the largest firms.

Firms with 101 to 500 employees paid their invoices three quarters of a day faster than in the previous quarter (from 25.84 days to 25.07 days), while firms with more than 501 employees improved by two thirds of a day (from 34.77 days to 34.12 days).

These businesses also led the way in improvements when compared to their payment performance in Q4 2010. Firms with more than 501 employees settled their invoices almost two days faster while firms with 101 to 500 employees improved by almost three quarters of a day – from 36.06 days and 25.79 days in Q4 2010, respectively.

Jason Mills, Head of Payment Performance at Experian UK & Ireland, said: “Payment performance is the timeliest indicator of the current health of any business, so the overall improvement suggests that during the last three months of 2011, pressure on cash flow and finances was more manageable for most businesses.

“Feedback from our larger customers demonstrates awareness and understanding of the struggles faced by some of their key SME suppliers so are prioritising payments to them, to better support them.

“The only firms to see an increase in their payment performance from Q3 to Q4 were firms with three to five employees. The increase, however, was very small and is a timely reminder for smaller firms to credit check potential new and current business customers for signs of possible non-payment before it is too late.”

Regional performance

Firms in the North West continued to pay their suppliers later than firms in any other region – 35.54 days after agreed terms. However, the improvement from quarter-to-quarter and year-on-year was by far the biggest – by 1.2 days from Q3 and almost six days from Q4 2010.

Industry trends

Of the five biggest sectors in the UK – business services, building/construction, property, IT and leisure/hotels – the building and construction sector saw the biggest improvements, both from Q3 2011 and also Q4 2010.

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The Forum of Private Business is responding with dismay to a government announcement that legislation to improve the pre-pack insolvency sales process, designed to clamp down on ‘phoenix’ companies starting again while leaving their creditors unpaid, will now not go ahead as planned.

In a statement, the Employment Minister Edward Davey said that, having ‘taken into account all of the issues’, the Government has decided the benefits of the proposed legislative controls are outweighed by adherence to the Government’s current ‘moratorium’ on new regulations.

However, while the Forum’s latest ‘cost of compliance’ Referendum survey shows small firms’ annual red tape bill has reached £16.8 billion in total, recent late payment data suggests that the UK’s small businesses are owed more than £33 billion in outstanding invoice payments. The Forum believes the Government should think again, revisit some of its earlier proposals and go even further to protect creditors.

“Cutting red tape is hugely important but, against the backdrop of the Government’s de-regulatory agenda this is one area where tighter legislation would protect more firms from ‘phoenix’ companies abusing the pre-pack insolvency process by starting again while failing to pay them,” said the Forum’s Senior Policy Adviser Alex Jackman.

“Late payment – or in this case non-payment – devastates firms’ ability to maintain any kind of healthy cash flow and threatens their very survival. The Government is working on some extremely positive projects at present to help firms minimise the problem and offering them more protection in this way would also be of great benefit.”

In May 2011 the Forum wrote to Mr Davey as part of a consultation on ‘improving the transparency of, and confidence in, pre-packaged sales in administrations’, which followed the Statement of Insolvency Practice (SIP16) guidelines put in place in January 2009.

Reporting its members’ concerns over the abuse of the pre-pack insolvency process, for example when an existing management team or associates are able to effectively buy back the company without consultation with creditors, often doing this deliberately with the express purpose of avoiding paying debt, the Forum welcomed several proposals but called for more robust action to tackle the problem.

The Forum prioritised three options: first, following a pre-pack administration, restricting exit to compulsory liquidation so as to achieve automatic scrutiny of the directors’ and administrators’ actions by the Official Receiver; second requiring different insolvency practitioners to undertake pre- and post-administration appointment work; and third requiring the approval of the court or creditors, or both, for all pre-pack business sales to connected parties.

However, while backing several steps – such as providing a three-day notice period of an insolvency sale and ensuring best value sale prices to benefit creditors – the business support organisation made a number of further proposals to tackle the non-payment problem. They were:

• Strengthening the Statement of Insolvency Practice (SIP16), with penalties for non-compliance
• Tightening the rules against directors involved in multiple pre-pack insolvencies
• Preventing administrators actively promoting pre-packs as ‘business as usual’, following concerns that some are advising their clients to actively pursue this approach
• More robust scrutiny from the Insolvency Service.

On this final point, Mr Davey said the Insolvency Service already monitors compliance by insolvency practitioners with the SIP16, which requires administrators to provide creditors with early post-sale information on details of the sale and the justification for it.

He said officials have been asked to undertake an ‘urgent review’ in conjunction with stakeholders of how the existing controls on pre-packs have been working and whether, in light of their experiences and the outcomes from the monitoring, more could be done within the existing regulatory framework to improve confidence and transparency.

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The Insolvency Index from Experian®, the global information services company, today revealed that the insolvency rate[1] for 2011 rose only slightly compared to 2010.

21,070 UK businesses, 1.1 per cent of the total business population, failed in 2011. This represented a marginal increase on the 1.03 per cent (19,818 failures) recorded in 2010. In 2008 and 2009, the insolvency rates were considerably higher, reaching 1.16 per cent and 1.25 per cent respectively.

Experian’s analysis also shows that during the second half of 2011 the insolvency rate neither rose nor fell significantly – from a rate of 0.53 per cent (H1) to 0.56 per cent (H2).

Max Firth, UK Managing Director for Experian’s Business Information Services division, said: “Given the challenging economic climate in 2011, businesses in the UK were pretty resilient and this was reflected by the stable insolvency rate during the year.

“For businesses to improve their financial health and avoid insolvency, it is vital that they understand the risks they are exposed to and have strategies in place to protect themselves. By monitoring the performance of all current and potential clients, they can fully understand and prepare for the impact they could have on them if they failed.”

Yorkshire sees insolvency rate fall
Yorkshire was the only region to see an improvement from 1.46 per cent (1,724 companies) in 2010 to 1.39 per cent (1,653) in 2011. This is the second successive year the region has seen the insolvency rate fall.

Wales witnessed the biggest increase in its insolvency rate, jumping from 1.01 per cent (569 companies) in 2010 to 1.18 per cent (654) in 2011. Scotland, which has experienced significantly lower levels of insolvencies compared to other regions since 2005, came more into line with the rest of the UK with an insolvency rate of 0.93 per cent.

The UK’s biggest sectors
Of the UK’s biggest sectors – business services, building/construction, property, IT and leisure/hotels – the property sector saw the largest increase in its insolvency rate, from 0.72 per cent in 2010 to 0.91 per cent in 2011. 1,149 property companies failed in 2010, compared to 1,345 in 2011.

SMEs
Firms with one or two employees saw the biggest increase in the insolvency rate during 2011 – from 0.63 per cent in 2010 to 0.71 per cent. Despite this increase, they still managed to maintain the lowest rate of insolvencies compared to their larger counterparts.

[1] The insolvency rate is calculated by comparing the number of businesses that failed with the total business population in Great Britain.

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Nearly one in five (18 per cent) of those planning to retire this year will do so with outstanding debts, according to new figures released today by Prudential. The Class of 2012 research looks at the finances and expectations of those planning to retire this year, and found that the average amount owed by debtor retirees is £38,200.

Now in its fifth year, Prudential’s authoritative series of retirement research has tracked annual trends in pensioner finances. Interestingly, the proportion of people retiring in debt this year (18 per cent) has fallen slightly from 20 per cent in 2011. However, the average amount owed has increased by more than £5,000 from last year’s figure of £33,100 per person retiring with debts.

Outstanding mortgages and credit card bills make up the bulk of the Class of 2012′s debt. Half of those with debts owe money on their home loan and more than half (51 per cent) are struggling with outstanding credit card bills.

The results of the survey also give an insight into the effects of outstanding debt on the finances of a new retiree. On average, those planning to retire this year with debts will be making monthly repayments of £260, which equate to a fifth (19 per cent) of their expected £1,290 a month income.

Paying off debt could take this year’s retirees an average of nearly four years and eight per cent of those who will still owe money when they retire in 2012 say that they will never be able to pay it off. One in four (24 per cent) say that they will be making repayments of £500 or more a month.

Men retiring in debt this year are likely to owe substantially more than women, with average debts of £45,300 compared with £29,400 for women. 20 per cent of men expect to have debts when they retire compared with 16 per cent of women.

Vince Smith-Hughes, Prudential’s retirement income expert, said: “With a manageable repayment programme in place, debts need not become an issue for this year’s retirees – and there is plenty of help available through the Money Advice Service and Citizens Advice Bureau.

“Retiring with outstanding debts could be a sign of a lack of financial planning. It is important therefore for those still at work to save as much as possible as early as possible, and to consult a financial adviser to help them plan for a comfortable retirement.”

The Prudential research results also show that around the country, people in Wales planning to retire this year are the most likely to have debts (21 per cent of retirees) while those in the East Midlands are the least likely (11 per cent of retirees).

Source – Online survey conducted by Research Plus on behalf of Prudential between 2 and 12 December 2011 among 9,614 UK non-retired adults aged 45+ including 1,003 people retiring in 2012.

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Chief Bankruptcy Registrar Stephen Baister, who is also President of the Institute of Credit Management, gave the IPA annual lecture in Pall Mall on Thursday evening. The event attracted around 100 guests to hear Baister deliver a highly critical analysis of the Government’s proposals.

Baister began his address and set the tone for the evening by stating that, in his opinion, the Insolvency Service proposals were so badly thought out in their reasoning that they were deserving of satire rather than serious consideration.

One of the main planks of the Insolvency Service proposal is that the current court process is replaced by an online facility for petitioning for bankruptcy and winding-up, with an adjudicator – a civil servant in the Service – making the final decision in most undisputed cases. The Government’s aim is to streamline the process and remove the court from the majority of cases; the process would be largely electronic and therefore effectively in secret as there would be no advertising of petitions. It would become, he suggests, little more than an extension of a creditor’s private debt collection activity.

A fundamental flaw in the proposed new system, he argues, is that it ignores the fact that many ‘ostrich’ debtors will not respond to the letters, emails and text messages sent by the creditor or adjudicator, and the result of that will be many more bankruptcies and company liquidations than anyone wants. Creditors want their money, first and foremost, rather than the satisfaction of seeing a struggling company closed down. Currently many winding-up petitions result in settlement of the debt, though often very late in the process – in the ‘last chance saloon’, perhaps after a court adjournment. Many of those cases in the future could end up with businesses being shut and employees dismissed.

Baister made the point that in other areas of law, there is a general move towards increasing visibility not reducing it, as the Insolvency Service is currently proposing. He stressed that a bankruptcy order has a wide ranging impact that should not be put in the hands of an unqualified civil servant. Referring to the late Sir Kenneth Cork, architect of much of the current insolvency legislation, Baister reminded his audience that the nature of insolvency work has always been regarded, rightly, as encompassing complex technical, legal and accounting issues that require a suitably qualified person to manage the process – something which Baister feels the Insolvency Service now appears to be overruling.

He invited everyone to consider whether a purely administrative ‘automatic’ mechanism to obtain a bankruptcy order might be the ‘thin end of the wedge’; what next, he wondered? ‘Undisputed’ divorces without court involvement?

Perhaps Baister’s most telling remarks were reserved for his observations about the proposed new adjudicator. He questions whether a Government employee could have the experience and knowledge, and therefore the competence, to adjudicate on the validity of disputes in potentially complex areas of law, and he points to an inherent conflict in placing the adjudicator in the same Government agency as the Official Receiver.

Effectively, the same department will determine whether a bankruptcy order should be made, it will then make the order and administer the bankruptcy estate from which it will draw a fee (typically up to £4,000, utilising most of the available funds, in low income cases).

Commenting, David Kerr, Chief Executive of the IPA said:

“The annual lecture once again was a great success. It has become a must attend event for our members and other professionals with an interest in insolvency. We share some of the Registrar’s concerns, particularly about the lack of independence of the new adjudicator. But we are also worried that these plans will make it much easier for a debtor to file for his/her own bankruptcy – a step that Stephen rightly says should not be undertaken lightly – and that many more bankruptcies will result, needlessly. As presently envisaged, this will simply increase the flow of work into the Official Receiver, to the detriment of creditors. There are, in our view, inadequate provisions regarding the need to properly and fully explore alternatives.

Bankruptcies in which the only funds are payments from a debtor’s income are invariably more expensive than other solutions, such as Individual Voluntary Arrangements. Measures allowing the courts to explore this before making an order will be lost in the new regime, and that will mean creditors’ bad debts increasing – a no doubt unintended but nevertheless unwelcome consequence in the present economic climate.”

The consultation closes on 31 January and we would urge our members that have not yet submitted responses to do so.

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Rents fell for a second successive month in December, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

In December, the average rent in England and Wales fell by 0.8% to £711 per month. Despite the monthly fall, annual rental inflation increased to 4% from 3.5% in November, as tenant demand in December surpassed that of a year ago.

On a monthly basis, rents fell in seven regions, with the biggest declines in the South East and North East, where they fell by 1.9% and 1.4% respectively. Rents in London fell for the first time since December 2010, with rents falling by 0.9%, compared to a drop of 2.3% a year ago.

In the last 12 months rents have risen in all but two regions. The fastest rising rents on an annual basis were in London where rents rose by 5.6%. The next biggest increases were in the East and South East of England, with rents rising 5% in both regions. Rents fell in the North East and South West by 1.3% and 1.2% respectively.

Despite the average rent in England and Wales falling by 0.8% December, the seasonal decrease was less than the 1.2% monthly fall recorded December 2010.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains comments: “The seasonal relief continued for tenants as rents dipped again in December, but the drop-off was much smaller than a year ago. The rental market was sheltered from the full impact of the seasonal lull by the strength of underlying tenant demand as many prospective renters took the opportunity to move in the run-up to Christmas at a time when the market is traditionally less competitive.

“With the mortgage market facing challenges from the eurozone crisis and the sluggish wider economy, credit conditions are unlikely to ease significantly in the coming year. As a result, the number of first-time buyers able to secure finance isn’t about to rocket up, and demand for the limited supply of rental accommodation will continue to rise. It won’t be long before rents will resume their upward march.”

Tenant Arrears Deteriorate

Tenant finances deteriorated in December, with 10.7% of all rent late or unpaid at the end of the month, compared to 9.3% in November. Nevertheless, the seasonal increase was much lower than December 2010, when rental arrears rose to 11.7%. In December, unpaid rent totalled £300m, a 12% increase from the £263m unpaid or late in November.

Newnes concludes: “The festive season tends to crank up the pressure on tenants’ finances, with spending over the holiday season often exacerbating existing financial difficulties. Despite this, overall rental arrears in December were at a lower level than a year ago. While there are indications that a small minority of tenants are facing increasing arrears, the overall tenant population has coped reasonably well with the impact of higher rents and soaring inflation.

The influx of financially sound, frustrated buyers has helped prevent higher general arrears so far, but as the labour market weakens and wage growth remains lethargic, we expect a steady rise in arrears as the year progresses.”

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Political uncertainty in the Eurozone has paralysed the UK recovery, according to the latest quarterly forecast from the Ernst & Young ITEM Club, with UK GDP expected to flatline for the rest of year.

ITEM Club’s winter forecast says that deteriorating levels of confidence will see business investment stagnate in 2012, whilst export prospects have already slowed. According to the report, the UK is probably already in a technical recession and will struggle to reach positive growth until 2013.

The report forecasts UK GDP of 0.2% this year before increasing to 1.8% in 2013 and 2.8% in 2014.

UK back in recession
Professor Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club explains: “Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement. But it’s not going to be a repeat of 2009; we are not going to see a serious double dip.

“This time around, UK PLCs have strong balance sheets and have built up large cash stockpiles, which will provide a useful insurance policy if the situation deteriorates further. Business spending has already been cut back heavily. However, with business confidence faltering, investment and recruitment are likely to remain on hold until stability returns.”

ITEM Club forecasts that investment fell by 2.6% in 2011 and will grow by just 0.4% in 2012.

Unemployment will approach 3 million
The labour market outlook also remains bleak. According to the report, sluggish levels of private sector recruitment will be unable to offset job losses in the public sector. ITEM says that unemployment will be just shy of the 3 million mark in the first half of 2013, representing 9.3% of the UK’s labour force.

Spencer comments: “We are expecting to see another 300,000 unemployed this year, which is relatively modest when compared to the increase in 2009, but this is adding to an already lengthy dole queue.

“The only piece of good news for UK households is that inflation should fall back below 2% this year, as commodity prices weaken and the VAT rise drops out of the calculation. We will have a bit of extra cash in our pockets, but concerns over rising unemployment are unlikely to see consumers rushing back out onto the high street.”

ITEM says that disposable incomes will decline by 0.8% this year, whilst consumer spending will remain flat before picking up by 1.4% in 2013 as employment prospects brighten and inflation remains low.

Exports still hold the key to UK’s recovery
According to the report, the UK’s recovery is still heavily dependent on exports. Exports accounted for most of last year’s growth, adding 0.9 percentage points to GDP in 2011, but with weakening demand from the Eurozone and concerns over China’s ability to soft land their economy, the outlook for 2012 looks much less promising.

ITEM is predicting export growth of 3% this year, which will add 0.4 percentage points to UK GDP. But this will be dependent on the UK’s ability to continue to re-orient exports away from the Eurozone to the rapid growth markets, such as India and Indonesia.

Martin Cook, commercial managing partner at Ernst & Young, comments: “Many UK companies rely heavily on their Eurozone trading partners but this is no time for ‘business as usual’; they will need to adapt, assess their long term business models and be prepared to tap into new markets.

“Corporates need to start planning for different scenarios, as no-one really knows how the Eurozone crisis is going to play out. Doing nothing is simply not an option.”

But significant risks remain
Spencer concludes: “There’s a lot hanging in the balance. Our forecast is based on the assumption that the Euro remains intact and that policymakers are able to contain the Eurozone crisis. However, the longer the uncertainty continues, the more debilitating the impact will be on the UK’s economic prospects.”

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New Cebr forecasts released today indicate that the UK economy is probably already in recession with negative GDP growth in Q4 2011 and Q1 2012.

Cebr has also revised down its forecast for growth for 2012 as a whole from 0.7% growth as predicted last October to a decline of 0.4% with a risk of a more serious decline of 1.1% if developments in the Euro zone are especially negative.

Cebr also forecasts sluggish growth in the medium term, Growth in 2013 is forecast to be minimal at 0.9% and from 2014 onwards at around 1% per annum.

Inflation is forecast to fall to 1.7% by Q4 2012 and to remain around 2% thereafter despite rising commodity prices and a weak pound.

Unemployment is forecast to rise sharply to about 3 million in 18 months time as companies batten down the hatches for the long term and revise their medium expectations of labour requirements.

Base rates are expected to remain at 0.5% to 2016, while increased quantitative easing to a total of £400 billion is expected for 2012 with the possibility of more in future years.

Scott Corfe, Cebr Senior Economist and main author of the report comments: ”We see a weak outlook for sterling. But of course the euro and the dollar are also likely to be weak, so the main weakening is likely to be against the Asian currencies and the commodity based currencies. We see the Western currencies falling by about 30% vs the renminbi to 2016 and by 15-40% against commodity based currencies.”

Douglas McWilliams, one of the report’s authors and Chief Executive of Cebr, added: “We take no pleasure in outlining such a bleak forecast. But the world is going through a fundamental change where previously poor economies are industrialising fast. This is good news for them, but because of the limits imposed by shortages of energy, minerals and food, some of their growth is at our expense.

“This is not to say that if we break off trading with them we will be better off. On the contrary, a strategy of disengagement with the rest of the world would make matters very much worse.

“The Chancellor will not reduce the deficit as quickly as he thinks since tax revenues will be depressed by slow growth. But this does not make the case for giving up on austerity. Indeed our forecast, which shows that the UK debt to GDP ratio will go above 90%, means that he will at the minimum have to keep the austerity programme going for much longer than he originally thought.”

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The Bank of England should be bold and increase the Quantitative Easing (QE) programme by a further £50 billion, the British Chambers of Commerce (BCC) has claimed.

The call comes after the Bank’s Monetary Policy Committee voted for no change in fiscal policy this week, keeping interest rates at their record low of 0.5 per cent, and QE at £275 billion.

QE was last increased by £75 billion in October, but the Bank should be more generous with the available QE allowance in order to avoid a setback and to boost growth, says David Kern, chief economist at the BCC.

“Since the challenges facing the UK economy will increase in the first quarter of 2012, a further £50bn increase in QE to £325bn would be welcomed by hard-pressed businesses. An immediate increase in QE would strengthen confidence and help to contain sterling rises against the euro, at a time when we must maintain the competitiveness of our exports. Sterling has risen by some six per cent against the euro in the last three months and this puts unwelcome pressure on British exporters,” Mr Kern said.

Any increase should be coupled with effective credit easing measures, he adds: “But QE will only achieve its full potential to support growth if it is supplemented by effective measures aimed at improving the flow of credit to viable businesses. The government must swiftly implement its promised credit easing measures, and the Bank of England should play its full part in supporting such an initiative.”

But economists believe that markets may not be able to digest more QE at this stage, particularly because the last round is not due to finish until February. Howard Archer, chief economist at Global Insight said:

“There is belief within the MPC that the markets may have difficulty digesting extra QE at this stage. Holding back on more QE also gives the MPC more time to judge whether underlying inflationary pressures are easing, which some committee members believe is important for the Bank of England’s credibility before it goes further down the QE road.”

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