Insolvency costs to taxpayers rise by 31%

25-Feb-2019 - Last updated on 25-Feb-2019 at 10:08 GMT

Perfect storm: high streets have been battling rising business rates and many other factors

Insolvent companies – across all sectors of the British economy – that couldn’t pay their debts, have cost taxpayers £3.07bn in payments to former staff members during the past 10 years.

The research from real estate adviser Altus Group discovered The Insolvency Service – an agency of the Department for Business, Energy and Industrial Strategy – paid out a total of £298.07m to former members of staff as a result of their employer entering into administration, liquidation, a company voluntary arrangement, or another form of corporate in 2018.

Some £196.36m was paid out in redundancy pay while £59.85m was for money that would have been earned working a notice period.

The balance went on holiday pay and outstanding payments like unpaid wages, overtime and commission, according to data released to Altus Group under the Freedom of Information Act.

Retail insolvencies

This amount paid rose by almost one third on the previous year, some £70.63m higher than the £227.44m paid during 2017 – the highest paid out of the National Insurance Fund since 2013, driven by the high street crisis.

Also, 17,439 companies in England and Wales collapsed last year with the number of retail insolvencies rising by 9.5% while insolvencies at food and beverage establishments increased by 17.9%.

High street shops including Poundworld, Toys R Us and Maplin disappeared last year alongside restaurant chains that were forced into restructuring deals with landlords, closing hundreds of stores while the number of pubs continued to fall, Altus said.

High streets across the nation have been battling a perfect storm of rising costs from business rates, rents and minimum wage rules at a time of falling sales amid uncertainty over Brexit, resulting in subdued consumer confidence.

Contributory factor

Altus Group added that the Ministry of Housing, Communities and Local Government confirmed it expects councils in England to collect £25bn in business rates in April for 2019-2020 – up £206m with the standard tax rate exceeding 50% for the first time in April.

Altus Group head of UK business rate Robert Hayton said: “While business rates are rarely the sole driver for insolvencies, they certainly are a contributory factor and the Government needs to fully understand the impact of the actual level of this tax on businesses, not just for those on the high street but across all sectors.

“Could lowering the level of business rates actually reduce insolvencies negating these associated costs and the distress caused?”