Companies ease out of financial distress

34 per cent decline in "critical" difficulties.

Fewer companies are facing severe financial distress than they were a year ago, in a sign that the economic climate might be improving in the UK

According to the Begbies Traynor Red Flag Alert for Q1, there has a been a 34 per cent decline in companies rated as having “critical” financial difficulties. Across all sectors, the number of companies reduced from 5,000 in the first quarter of last year, to 3283 in Q1 2013.

However, Begbies Traynor warned that the improvement “masks a patchy recovery” and said that sectors reliant on the consumer economy such as retail, leisure, media and real estate had seen an increase in financial distress for the period.

Plus, taken on a quarterly basis, there has been an 8 per cent increase in critical companies from the last quarter of 2012.

The number of leisure companies facing severe financial distress has rocketed by 81 per cent since last quarter, which the report says may be due to unseasonably cold weather in the start of the year. The number of construction companies in critical conditions almost halved compared on last year’s numbers, whereas the real estate sector hs seen fincnail ditress levels rise 24 per cent in the last year.

Julie Palmer, partner at Begbies Traynor, said, “The year on year improvement reflects the continued forbearance and benign monetary conditions facing UK businesses today, combined with an improving credit environment, albeit primarily for larger corporates. Business confidence is slowly returning in the form of greater business spending on both services and investment.”

The report also sounds concern over the lack of funding available to support the SME sector. The number of companies that managed to secure new funding had dropped by 14.5 per cent from a year ago, and down 11 per cent on a quarterly basis.

Palmer added: “The underlying trend is arguably one of an improving picture. However, given the slight increase in distress compared to the previous quarter, it remains to be seen if we are out of the woods yet. With business rate increases planned in April, HMRC’s new PAYE Real Time Information requirements coming into effect, and further minimum wage rises ahead there are still significant headwinds for the UK SME sector, which is typically less able to bear the burden of these changes than their larger counterparts.”

The support services and professional services sectors have seen the strongest recovery in the last year.

This story first appeared on economia

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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.