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Lending to businesses falls again

Monday, October 25th, 2010

Lending to businesses fell for the fifth successive month in July, according to figures just released by the Bank of England (BoE), with £2.5billion less lent to business compared to the month before.

The BoE said that, while credit conditions were easing for larger firms, they remained tight for smaller companies. However, the bank also conceded that lending remained subdued, as businesses concentrated on paying off existing debts rather than taking on new ones.

The bank did report a fall in the cost of borrowing, with interest rates at their lowest effective levels since August 2007.

Lobby groups including the Forum of Private Business (FPB) have warned that businesses will be unable to create jobs and contribute to the economic recovery if access to finance is not improved.

In some cases, small businesses may be able to increase their chances of approval by supplying more up-to-date accounts, as those currently filed with Companies House will cover the worst of the recession last year, and more recent figures may show an improvement.

It has been suggested that returning greater authority to bank managers may improve the situation but such a change is not likely, with Lloyds Banking Group stating this week that it was poor decision-making by managers in the past that led to them being stripped of this power.

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Q&A: Government Spending Review 2010

Tuesday, October 19th, 2010

After months of warnings, the UK’s “age of austerity” will begin in earnest on 20 October when the government announces the results of its Spending Review.

It will give us the details of which government departments will need to cut their spending, and by how much.

So why are cuts on the cards, what might the impact of those cuts be, and are there any alternatives to cuts?

Why is the government making cuts?

he public finances are in a poor state.

In the 2009-10 financial year, the budget deficit hit a record £155bn, meaning the government spent significantly more than it earned from taxes.

That meant the government had to borrow money to fill the gap, adding to the UK’s growing debts. Total debt is expected to reach £900bn (70% of GDP) in the next few years.

Big cuts to spending are therefore planned to reduce the budget deficit and allow the government to start paying back its debts.

Are there any alternatives?

In closing the gap between income and expenditure, the obvious alternative to cutting spending is to raise taxes.

Tax increases are being introduced, but they account for less than a quarter of the £86bn target.

The previous Labour government, responsible for many of the tax increases adopted by the coalition, said it would aim for something closer to 67% cuts and 33% tax rises. Labour’s new leader, Ed Miliband, has voiced his support for a 50-50 split.

Labour also favour spreading the cuts over a longer time period in order to reduce the pain.

Some left-leaning think tanks have also proposed alternatives. One – Compass – argues that reforms to the tax system, including introducing a 50% income tax rate at a lower threshold, would reduce the need for cuts.

It adds that the cuts should be selective rather than across the board, with items such as the Trident nuclear submarine programme and Private Finance Initiatives (PFI) in the firing line.

What will the impact of cuts on the economy be?

According to Labour, the economy remains fragile and severe cuts to public spending should wait until the economy is strong enough to withstand them.

They say cuts on the scale being proposed risk propelling the UK back into recession – which would push up unemployment and welfare bills as well as cutting tax receipts, thus hampering efforts to cut the deficit.

Economists, as ever, are divided over the impact cuts could have on the UK’s recovery from recession.

The new Office for Budget Responsibility forecasts the economy will grow by just 1.2% this year, and by 2.3% in 2011.

The coalition government has put deficit reduction at the heart of its economic policy, arguing that the poor state of the UK’s public finances poses a greater threat to economic recovery than cuts in spending.

The chancellor has also pointed to the Greek debt crisis that erupted in Europe earlier this year as a sign that the UK’s debts must be tackled as a matter of urgency. He also says his measures will keep interest rates lower than they would otherwise be, thus helping the economy recover.

How did we get into the current situation?

The UK has been running a budget deficit for many years, financing spending programmes through borrowing.

Budget deficits

This is not uncommon, even among the most developed economies, and economists remain divided over the benefits and drawbacks of running a deficit.

But it pushed total government debt up to about 35% of GDP before the beginning of the financial crisis in 2008.

That crisis, and the recession that followed, then forced a huge increase in government spending, with billions spent on stabilising the banking sector, funding economic stimulus measures and welfare costs for the rising number of unemployed.

At the same time the decline in the economy resulted in a fall in tax income, widening the gap between government earnings and government spending to its current record level.

By how much will spending be cut?

The Chancellor, George Osborne, has set himself a target of eliminating the structural current deficit (covering day-to-day rather than investment spending) by 2015-16.

The structural deficit is the part of the deficit that will still exist even when the economy fully recovers from recession.

The Office for Budget Responsibility said at the time of the Budget that the chancellor was on course to achieve that target a year early in 2014-15 with a little bit to spare.

George Osborne says he is “repairing” the deficit to the tune of £113bn by 2014-15. That breaks down into £83bn of spending cuts and £29bn worth of tax rises that year (it adds up to £113bn after rounding).

It is important to note that £73bn of this tightening was inherited from Labour and Mr Osborne has added £40bn. The breakdown for the whole package is now 74% spending cuts, 26% tax rises.

These Treasury figures are expressed in 2014 money (in other words, inflation-adjusted). The spending cuts calculation is based on how much less public spending will be in 2014-15 than it would have been if it had risen in line with inflation.

The independent Institute for Fiscal Studies (IFS) has adjusted these figures and expressed them in “today’s money”. In other words how would the cuts feel today if a sum equivalent to the same proportion of economic output was removed?

The IFS says on that basis the spending cuts would total £68bn and the tax rises £24bn.

What will be cut?

Although the Spending Review is still under way, the government has already given some clues as to where the axe will fall.

Departments are being asked to demonstrate how they might make savings of between 25% and 40%.

That excludes spending on the National Health Service and on overseas aid, managed by the Department for International Development (DfID), which the government has pledged to protect.

Cuts are likely to be at the lower end of that scale. In his June Budget, Mr Osborne said other departments would face budget cuts averaging 25%.

Defence and education spending will not be exempt, but should see less harsh cuts of 10% to 20%, he said.

According to the IFS, that could see unprotected departments such as the Home Office have their budgets cut by 30%.

The welfare system, which accounts for a large proportion of government spending, could also see bigger cuts, adding to the £11bn of savings announced in the Budget.

Is this Spending Review an emergency measure?

No, it’s not. The Spending Review is part of the government’s normal Budget process, introduced by the then-Chancellor Gordon Brown in 1997.

The review is usually conducted every two years, and allows the government to set the spending limits for every government department for the following three years. Before the reviews were introduced departmental budgets could change every year, making it difficult to plan ahead.

Cuts Watch -  Check here for updates.

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Spending Review

Tuesday, October 19th, 2010

The Chancellor, George Osborne, will set out the Government’s four-year public spending plans in the Spending Review at 12:30 on Wednesday 20 October 2010.

An introduction to Spending Review

What is a Spending Review?

The Spending Review is a Treasury-led process to allocate resources across all government departments, according to the Government’s priorities.  Spending Reviews set firm and fixed spending budgets over several years for each department.  It is then up to departments to decide how best to manage and distribute this spending within their areas of responsibility.

In addition to setting departmental budgets, the 2010 Spending Review will also examine non-departmental spending that cannot be firmly fixed over a period of several years, including social security, tax credits, some elements of local authority spending and spending financed from the proceeds of the National Lottery.

Spending Reviews have been an important part of governmental planning since the late 1990s.  Prior to their introduction, departmental budgets were set on a year-by-year basis which made multi-year planning more difficult.

The 2010 Spending Review will cover the four years from 2011/12 to 2014/15.

When will the outcome of the 2010 Spending Review be announced?

The Chancellor will make a speech and present the Spending Review to Parliament on 20 October 2010.

How does the 2010 Spending Review relate to the June Budget?

The June Budget set out the overall level of public spending for the four years from 2011/12 to 2014/15.  This is often referred to as the spending envelope.

The 2010 Spending Review is the process through which this spending is allocated to pay for all areas of Government activity including public services, social security, and administration costs.

How are public spending levels (also known as the spending envelope) set?

Public spending levels were set in the June Budget by looking at how much Government can spend whilst meeting its plan to reduce the deficit, given the level of forecast economic growth and taxation.

The June Budget announced that the spending envelope will increase from £640bn in 2011/12 to £659bn in 2014/15. In the absence of any policies that affect Government spending, it is reasonable to assume that over the next four to five years total Government spending would have grown in line with general inflation in the economy. Compared to that assumption, Government spending will be £83bn lower in four to five years’ time as a result of planned cuts inherited by the Government – and new policies announced in the June Budget.

The June Budget announced some specific cost reduction measures, including £11 billion of welfare reform savings and a two year freeze in public sector pay, except for those earning less than £21,000 a year.

How is this Spending Review different to previous ones?

Due to the scale of Britain’s deficit, the 2010 Spending Review will necessitate some tough choices about how the Government allocates spending.

Successfully reducing the deficit will require a completely different approach. So at the 2010 Spending Review, the Government will:

  • think innovatively about the role of government in society;
  • take decisions collectively as a Government, led by the Public Expenditure Committee of senior Cabinet Ministers appointed by the Prime Minister and chaired by the Chancellor to advise the Cabinet on the high-level decisions that need to be taken; and
  • consult widely with experts and the wider public, to get their ideas

The Government has said that its approach to these tough choices will be guided by the principles of freedom, fairness and responsibility. It has also said that these choices should be supported by new and radical approaches to the provision of public services.

In addition, the Government appointed an Independent Challenge Group (ICG) of Civil Service leaders, complemented external experts, to bring independent challenge to the Spending Review process. The group will have a remit to think innovatively about the options for reducing public expenditure and balancing priorities to minimise the impact on public services.

How have you consulted with the public and what difference can the public make to the Spending Review?

The Government launched the Spending Challenge to give public sector workers and the general public the opportunity to submit their ideas on how government could get more for less and tackle the deficit. Three of the ideas are already being taken forward.

What is the process for determining departmental settlements?

At Spending Review 2010 decisions will be made collectively by the Government.  Leading the collective approach is a Committee of senior Cabinet Ministers, called the Public Expenditure (PEX) Committee.  This is sometimes referred to as the Star Chamber.

The PEX Committee will advise the Cabinet on the high level decisions that will be taken in the Spending Review.

Throughout the process of preparing the Spending Review, PEX Committee meetings will be supplemented by discussions between departments and the Treasury.

A Permanent Secretaries Spending Review Group also meet to build the Government’s understanding of the issues, ensuring support for the overall principles and approach and discussing cross-cutting issues.

What is a Star Chamber?

The Star Chamber takes its name from an English court of law established in the 15th century in the Palace of Westminster.  The court took its name from the room in which the court met.

The court was initially intended to bring prominent and powerful people to justice, where ordinary courts could not.

The term Star Chamber was used again in the 1980s for meetings between senior departmental Ministers and the Treasury to resolve spending issues.

Who are the members of the Public Expenditure (PEX) Committee / Star Chamber?

Where can I find additional information on the Spending Review?

The Chancellor set out the Government’s approach to the Spending Review on 8 June 2010.  The accompanying document, The Spending Review Framework sets out details of the Government’s strategy for delivering the Spending Review.

Download the framework as a PDF

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123,361 UK companies experiencing significant or critical distress

Monday, October 18th, 2010

Over 123,000 UK companies are struggling under the weight of nearly £58 billion worth of liabilities, according to the latest quarterly Red Flag Alert, issued today by Begbies Traynor, the UK’s leading business recovery specialist.

The report, which monitors the early warning signs of company distress, has found that 123,361 companies experienced ‘significant’ or ‘critical’ financial distress in Q3 2010, with those experiencing ‘critical’ financial problems owing over £57.5 billion to creditors, suppliers and service providers.

Public sector already suffering

This news comes against a challenging backdrop. Earlier this month, house prices registered their biggest ever monthly fall, and next week the government is preparing to announce the results of the Comprehensive Spending Review, in which it is expected to reveal a raft of spending cuts which will hit those businesses most dependent on public spending hard.

According to Red Flag Alert, 50,299 companies are already experiencing financial distress in these sectors which cover construction, IT, recruitment, advertising and business services. Whilst this represents a slight improvement on the previous quarter, (down 4% compared to 51,711 in Q2 2010), overall the figures show a marked slowdown in the rate of recovery when compared to the 20% improvement in Q2 2010 from 64,805 in Q1 2010. This sharp reversal of fortunes was particularly pronounced in the advertising sector, down 29% between Q1 and Q2 2010, but now revealing a 27% increase in businesses experiencing financial distress in the sector from 705 in Q2 to 892 in Q3 2010.

Ric Traynor, Executive Chairman of Begbies Traynor Group, said: “It will not be until the Government’s Comprehensive Spending Review in a week’s time that we will know for certain the allocation of all of the anticipated £83 billion of spending cuts. However, our Red Flag Alert statistics show that the sectors most likely to be most impacted are already starting to shows definite signs of financial distress. With confidence in the construction sector falling to an eighteen month low, recruitment activity at its slowest for almost a year and a strong increase in distress in the advertising sector, there is a growing risk that even if the wider UK avoids a double dip recession, public-sector dependent industries face higher levels of financial distress.”

The slowdown in the rate of recovery has been found across the board in the latest Red Flag Alert statistics. Overall, although the number of companies experiencing distress has fallen by 10% compared to 137,268 in Q3 2009, the rate of recovery is the slowest for five quarters and compares to a 31% decline in distress in Q2 2010 versus Q2 2009.

In addition, this latest quarter has also been marked by a significant increase in the number of HMRC wind-up petitions – up 39% between August and September, showing that the government may understandably be getting tougher on chasing taxes to increase revenues from both corporates and individuals.

Traynor added: “The decline in the numbers of businesses in distress reflects a combination of lenient creditor attitudes and the effects of temporary government support initiatives, including quantitative easing, the time to pay scheme and low interest rates.

“However, the marked slowdown in the rate of recovery points to the renewed challenges facing UK corporates, as reflected by a recent significant weakening in corporate confidence1, and there is some early evidence that creditors such as HMRC are adopting a harder line in collecting debts.

“Our Red Flag Alert statistics do not fully account for the substantial number of informal arrangements being made between companies and their creditors behind the scenes. We urge businesses to formalise those arrangements, which are not currently legally binding, while creditors remain more sympathetic or risk harsher terms or adverse actions in the future.”

Further distress expected in the consumer facing industries

The consumer facing sectors of retail, leisure and travel have also seen a slowdown in their rate of recovery. 15,500 companies are experiencing financial distress, representing a 7% improvement from 16,650 in Q2 2010 compared to an 11% improvement in Q2 2010 from 15,436 in Q1 2010.

Traynor added: “Retail, leisure and travel are already seeing a slowing rate of recovery ahead of greater pressure on consumers’ disposable incomes from increased VAT rates and public spending cuts. With recent evidence of house price reductions, falls in consumer credit5 and lower savings ratios6, we expect a combination of deteriorating consumer confidence and financial resources to result in growing numbers of business failures in those sectors most exposed to discretionary spending.

“Whilst the retail sector may benefit from a short term boost as consumers purchase bigger ticket items ahead of the VAT rise in January, we expect to see a significant rise in failures in the sector from the first quarter of 2011.”

Unwinding of government support measures starting to have an impact

In addition, Red Flag Alert also shows that there was an 11% increase in companies experiencing financial problems in the automotive sector from 3,007 in Q2 2010 to 3,352 in Q3 2010.

Traynor added: “The automotive sector represents the first sector to feel the impact of the unwinding of temporary government support measures, as shown in an 11% increase in financial distress during the period following the withdrawal of the UK car scrappage scheme in March this year.”

“We believe that there will be a prolonged period of growth in business distress, as SMEs feel the full impact of the gradual unwinding of government support measures combined with public sector spending cuts and deteriorating business and consumer confidence.

“The £57.5 billion of liabilities still at risk of default by businesses in distress remains a very real and potentially far-reaching threat to creditors and to a smooth economic recovery.

“As the government has acknowledged, its key challenge is to strike the fine balance between maintaining confidence in its ability to reduce the UK’s deficit, whilst ensuring that cuts to public sector spending and the withdrawal of temporary support measures are sufficiently staggered to maintain the recovery.”

If you would like discuss how our Debt Collection service can assist your business, please visit the Debt Recovery section on our website,  contact us on +44 (0) 151 515 3014 or email us.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk)  and the full original article can be found by clicking here.

Banks to set up small business fund

Monday, October 18th, 2010

The UK’s six largest banks have put forward their plans for boosting the funding of smaller businesses.

Central to the plans is a £1.5 billion growth fund.

The money, which represents about 0.1 per cent of UK GDP, would be invested in firms over a period of years. The fund would buy up to a 10 per cent equity stake in the shares of companies with an annual turnover of between £10 million and £100 million, and with a capital borrowing requirement of between £2 million and £10 million.

In a paper presented to the Chancellor, George Osborne and Business Secretary, Vince Cable, the banks’ Business Taskforce also proposed a list of initiatives aimed at increasing the flow of credit to SMEs.

The banks involved in the Taskforce are Barclays, Royal Bank of Scotland, Lloyds Banking Group, Standard Chartered, HSBC and Santander.

Initial discussions had seen the banks asking the government for the investment of some public funds in the scheme, but this demand has now been dropped.

Instead the money will come entirely from the banks, although they have said they would welcome additional shareholders to the fund and will offer ministers the chance to nominate a representative to sit on its board.

Some of the main points in list of new initiatives include:

Supporting a network of business mentors for small businesses across the UK;

Improving service levels to micro enterprises by setting out in a new Lending Code the levels of service banks will provide and outlining additional sources of help and advice;

Publishing lending principles which clearly set out the minimum standards medium-sized and larger businesses can expect when asking banks for loans and other services;

Establishing transparent appeals processes when loan applications are declined, to be monitored by a senior independent reviewer;

Starting a pre-refinancing dialogue with firms 12 months ahead of any term loan coming to an end;

Supporting the government’s Enterprise Finance Guarantee Scheme;

Helping mid-sized businesses access syndicated debt markets;

Improving access to trade finance through targeted SME awareness-raising campaigns and exploring possible regulatory adjustments with the FSA;

Signposting alternative sources of finance, offering advice if a loan is declined and raising awareness about the financial solutions the business should consider;

Publishing a regular independent survey, commencing in early 2011, so there is an agreed and authoritative set of data on business finance demand and lending supply;

Holding regional outreach events throughout 2011 with business groups to bring together business owners and key staff from the banks;

Hosting a dedicated website through the British bankers Association (BBA) to draw together and link useful sources of information;

And establishing a Business Finance Round Table where senior representatives from the banks and business groups meet regularly to discuss and review trends, identify emerging areas of concern and ensure problems are addressed.

John Varley, chief executive of Barclays and chairman of the taskforce set up by the banks to review finance to small businesses, said: “As banks we have an obligation to help the UK economy return to growth. The private sector will play a key role in the recovery and it’s our job to help viable firms to be successful.”

A joint statement issued by Mr Osborne and Mr Cable said: “This is an important first step and we welcome it. It is important that the banks now deliver on these plans.”

Business groups, too, offered a generally warm support.

Matthew Fell, the CBI’s director of competitive markets, said: “These proposals will make a positive contribution to the financing of British business, which is essential for economic recovery. The measures represent a welcome step forward from the polarised and unproductive debate about lending to business.

“The establishment of a Business Growth Fund will make a helpful contribution to the financing of small companies. It is the sort of scheme that we have been calling for.

“The independent quarterly survey will not only help to monitor the success of these measures, but also provide policy makers, banks and business with useful intelligence to help inform their decision-making.”

David Frost, director general of the British Chambers of Commerce, said: “We are pleased that the Business Finance Taskforce has recognised that the banks can, and must, do more to help small- and medium-sized businesses. It is absolutely essential that the service provided to business customers is improved, so that they can swiftly secure the financing they need to invest, grow and drive the recovery.

“The proposed Business Growth Fund will be welcomed by the minority of SME businesses seeking equity investment. But we need to remember that many businesses are not seeking equity investment – so the improvement of lending processes and business-bank relationships must be the focus of any reform effort.

“Time is of the essence. The faster these reforms are implemented by the banks, the faster confidence will return to the companies that will drive the UK’s economic recovery.”

John Walker, national chairman of the Federation of Small Businesses, added: “Many of the measures announced will give businesses a better understanding about what they should expect when they approach banks as well as an independent right of appeal if they feel they have been treated unfairly.

“This will help to restore confidence and trust that has been lost for both those who can’t access finance as well as those who are wary of approaching the banks.”

If you would like discuss how our Debt Collection service can assist your business, please visit the Debt Collection section on our website,  contact us on +44 (0) 151 515 3014 or email us.

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ITEM Club: Fears of a double dip overdone, but UK will hit a soft patch this winter

Monday, October 18th, 2010

The UK economy has bounced back from recession and should avoid a double dip, according to the latest Ernst & Young ITEM Club quarterly forecast, out today. However, following a surprisingly strong first half of the year, the UK is heading for a ‘soft patch’ over the winter as the pace of recovery loses momentum.

Domestic and overseas markets have recovered nicely and the Ernst & Young ITEM Club predicts GDP growth of 1.4% this year and 2.2% in 2011. However, ITEM cautions that the outlook remains very uncertain, with opinion divided over the future prospects for the UK economy.

With businesses and consumers preparing for the government’s five year fiscal deficit reduction programme and further evidence that exports are levelling off due to a decline in global demand, it’s hardly surprising that the MPC is wrestling over the prospect of a second round of quantitative easing.

Concerns for the future of the UK economy ‘exaggerated’

Yet despite the obvious tensions within the economy, ITEM says that the concerns which have arisen on the risks of the UK economy overheating, or suffering a bout of deflation, have been exaggerated. ITEM predicts that CPI inflation will move below target from January 2012 as the VAT increase finally drops out of annual calculations, and holds firm on its view that interest rates will not go up again until 2014.

Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, says, “The economy is likely to slow over the winter following a surprisingly positive first half of the year, but I think this will be a soft-patch, not a double-dip.”

Housing market to double-dip through the winter

Spencer adds, “There are many forces weighing on the UK economy. Evidence is mounting that global demand is slowing, while the health of the banking system and its ability to support the recovery still remains in doubt. Household spending – despite showing some resilience this summer – is likely to buckle under the unrelenting pressure on disposable incomes, with credit remaining tight and the housing market now double-dipping.”

Peeling back uncertainty

The forecast is based on the assumption that one way or another the coalition’s ambitious spending reductions will be achieved. Spencer says that publication of the Comprehensive Spending Review (CSR) should help to reduce uncertainty and stimulate business investment, which is forecast to increase by 1.8% this year and accelerate to 9.0% in 2011.
“Wednesday’s announcement should peel away another layer of uncertainty from the economic outlook and encourage businesses to loosen the purse strings, in much the same way that the formation of the Coalition government and the June Budget did earlier this year,” he says. “Helping the UK out of recession has been a bit like peeling back an onion – removing one-by-one the risks to the economy in order to re-build business confidence.”

Cashed-out consumers
The Ernst & Young ITEM Club has long maintained that cashed-out consumers aren’t in a position to power the recovery. Indeed, for UK households, the outlook is bleak. The squeeze on consumer spending looks set to continue, with average earnings growth running below 2% and little prospect of a significant pickup while there is so much slack in the labour market. Unsurprisingly then, ITEM also says that real disposable incomes are due to fall by nearly 1% this year, with little recovery expected in 2011.

“Low wage growth and rising unemployment combined with the prospect of high inflation until at least the end of next year, means that the average UK household is in for a tough time,” Spencer remarks.

Future prospects remain positive

Clearly a lot still hangs in the balance for the UK economy and there are a number of downside risks that could come to the fore, not least the potential for the CSR to take demand out of the economy. But this was always going to be a slow protracted recovery.

Spencer concludes, “Things should start to improve towards the end of 2011. Until then, as we’ve said previously, economic recovery really is dependent upon the extent to which business and services organisations, whether they are in education, entertainment or whatever, can increase their overseas income flows as the home market stagnates.

“And while we expect a slowdown in export growth this winter, we remain confident that export growth will dominate imports next year, with net trade forecast to add 1.3% to GDP and another 0.6% in 2012, pushing the UK’s current account into surplus.”

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‘Big rise’ in number of new UK start-up companies

Friday, October 15th, 2010

The number of new businesses set up in the UK during the first six months of 2010 was the highest amount in more than a decade, a report has suggested.

A total of 204,361 new firms were established during the period, said business support group Yoodoo, which analysed Companies House data.

It said this was a 51% rise on the first six months of 2008, when the UK first went into recession.

The UK economy came out of recession in the last quarter of 2009.

Tony Heywood, chief executive of Yoodoo, said: “The recession left many people out of work or unhappy in work, and it is these people that are now using their own initiative to set up their business and help kick-start the economy again.

“Many of these people are not serial entrepreneurs, but instead are normal, hard-working people who have decided that they want to make a difference to their lives.”

He added that the research also showed that only 0.6% of firms founded in 2009 had since gone into receivership or liquidation, compared with an average of 4.5% of those firms set up between 2000 and 2008.

Mr Heywood said this showed that the recession had given new small firms a much greater resilience.

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More than 100,000 British firms are facing financial distress

Friday, October 15th, 2010

More than 100,000 British companies, with a combined £58bn of debts, are experiencing financial distress, said insolvency group Begbies Traynor. And, according to its Red Flag Alert report, around 50,000 companies are likely to be hit by the government’s cuts that will be announced next week, the group added.

“We believe that there will be a prolonged period of growth in business distress, as SMEs feel the full impact of the gradual unwinding of government support measures combined with public sector spending cuts and deteriorating business and consumer confidence,” Begbies said in the report.

Construction, IT, recruitment, advertising and business services are some of the sectors most vulnerable to the cuts, the report argued. “With confidence in the construction sector falling to an 18-month low, recruitment activity at its slowest for almost a year and a strong increase in distress in the advertising sector, there is a growing risk that even if the wider UK avoids a double-dip recession, public-sector dependent industries face higher levels of financial distress,” said executive chairman Ric Traynor.

Industries such as retail, leisure and travel are also expected to experience a slowdown in their recovery.

The so-called “zombie” companies that have survived the recession thanks to the support of state-owned creditor banks, such as Lloyds or RBS, or private equity firms that do not wish to book a loss, may find less support from now on. “There is some early evidence that creditors such as HMRC are adopting a harder line in collecting debts,” Begbies Traynor added.

HMRC wind-up petitions rose by 39% between August and September, as the government is “getting tougher” on chasing tax revenue.

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Administrations continue to drop

Friday, October 15th, 2010

Total administrations for the first nine months of the year are down 36% compared with the same period in 2009, according to analysis by Deloitte, the business advisory firm. Thus far 2010 has seen a total of 1,648 administrations, compared with 2,589 in the same period in 2009. Furthermore, administrations are down 20% from 2,061 administrations in the same nine month period in 2006 – the last full year before the financial downturn began.

The research shows that quarter on quarter administrations are falling to a pre-credit crunch low. Q3 of this year saw 476 administrations, down 36% from 733 in the same period in 2009, and down 8% on Q2 2010 (558).

Lee Manning, reorganisation services partner at Deloitte, comments: “Whilst the economy holds its breath for the outcome of the Comprehensive Spending Review, these figures offer a glimmer of hope. For the first time since the financial crisis began, we’re beginning to see a consistent drop in the numbers of companies hitting the wall. This can only be a good thing.”

The decline in administration figures is being seen across the industry sectors. The most pronounced drop was seen in the retail sector, with administrations down 50% on the same nine month period in 2009, and down 13% on the previous quarter.

Manning adds: “The decline in retail administrations highlights just how effective the proactive approach adopted by businesses to manage both their cash flows and stock levels appropriately has been. Certainly the raft of retail administrations we saw at the end of 2008 and beginning of 2009 sorted the weaker businesses from their more viable competitors.

“How this develops in the coming months will be a different story, however. UK consumers are already the most indebted in the world. With the impending government spending cuts, the forthcoming rise in VAT and the impact of higher income taxes and National Insurance, there is no question that consumers will have less disposable income. They will have to economise and where they choose to make their cutbacks will clearly impact the industry. Whilst we are unlikely to return to 2008 / 2009 retail administration levels, there are tougher times ahead. It would not be surprising to see more retail casualties.”

If you would like discuss how our Debt Recovery service can assist your business, please visit the Debt Recovery section on our website,  contact us on +44 (0) 151 515 3014 or email us.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk)  and the full original article can be found by clicking here.

Small businesses want the Coalition Government to cut deficit

Wednesday, October 13th, 2010

Three quarters of small businesses think the Coalition Government should cut spending to tackle the public deficit, new figures from the Federation of Small Businesses (FSB) ‘Voice of Small Business’ survey show.

The FSB will tell the Conservative Party Conference that 74 per cent of small businesses think the Government should cut public spending and six in 10 said they are more willing to accept cuts in public spending because of the size of the public sector deficit.

The FSB believes savings could be made with business support structures and access to finance systems. The FSB is concerned that too much is spent on business support yet only five per cent of that funding goes to micro firms. In this area the FSB recommends the Government cuts the business support budget to £500 million and concentrates spending on genuine business support for micro businesses and a fully operational web portal.

The emphasis on access to finance should be on ensuring the banks meet small business demand. The FSB believes bodies such as Capital for Enterprise Limited should be privatised as there are many private fund managers and management groups already providing this service. Such a move would save the public purse more than £2 million.

Turning to the economy in general, the FSB firmly believes that if the Government truly wants the small business sector to grow and take the economy back into solid recovery, it must do the following:

Extend the National Insurance Contributions holiday to existing firms: provide incentives for businesses with zero to four members of staff when they take on three more employees
Provide fast and reliable broadband: help small firms grow their business online which could create 600,000 new jobs
Promote small business services at the job Centre: ensure small businesses are aware of and use the Small Business Recruitment Service
Increase the VAT threshold: raising the VAT threshold to £90,000 could save business up to £162 million per year

John Walker, National Chairman, Federation of Small Businesses, said:

“The Government has said it wants the recovery to be enterprise led, and while small businesses have said they want to see the Government tackle the public deficit, business and economic growth must be a priority. We have heard time and time again that small businesses are the drivers of the UK economy and the job creators of the country. And the 4.8 million small firms truly are – employing more than half of the private sector workforce.

“We all know we are living in an age of austerity which will affect us all and that tough decisions must be made in the Comprehensive Spending Review, but we will be telling the Conservative Party Conference that small firms need the right measures in place so they can fulfill their role as innovators and job creators. Small businesses are the sector to aid recovery and must step up – but so must the Government.”

If you would like discuss how our Debt Recovery/Debt Collection service can assist your business, please visit the ‘Debt Recovery/Debt Collection’ section on our website,  contact us on +44 (0) 151 515 3014 or email us.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk)  and the full original article can be found by clicking here.

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