Analysts warn hospitality insolvencies could rise again despite slim easing of figures
According to the Government’s latest Company Insolvency Statistics, accommodation and food service insolvencies fell to 260 in September.
It follows a 16% drop recorded in August, when insolvencies fell to 270, their lowest level since January this year, from 323 in July.
Optimism over the continued decrease in insolvencies, however, has been stifled by the Government's Autumn Budget, which is set to see businesses hit with rising employment tax measures, as well as a hike in business rates, in April next year.
“While food and accommodation insolvencies fell for the third consecutive month, this may well be the calm before the storm following recent cost increases announced in the Budget,” says Saxon Moseley, partner and head of leisure and hospitality at RSM UK.
“The additional costs are set to put further pressure on operators’ already-stretched margins, meaning there’s likely to be more insolvencies to come.
“The hospitality industry is already in the doldrums, with subdued consumer confidence and people continuing to prioritise saving overspending.
“In the short term, operators will be hoping to make the most of the crucial festive season and build up a war chest of cash reserves, but that’s unlikely to be enough to see them through the raft of additional costs from April next year.”
Moseley adds that he expects to see a number of operators struggle to make ends meet in the new year.
“Calls for the Government to rethink its recently announced employment tax changes will grow louder, as more businesses conclude their operations are no longer viable in the current trading environment,” he continues.
In its own analysis of the Government’s figures, Buchler Phillips notes that its Hospitality Index of insolvencies (BPHI) has softened from 231.6 in June to 186.4 in September.
The BPHI is compiled from monthly company insolvency statistics made available by the UK Government’s Insolvency Service. Using a base of January 2014 as 100.0, the index tracks the sector classification of accommodation and food service activities.
“Make no mistake: it’s still brutal out there,” says Jo Milner, managing director of Buchler Phillips.
“Hospitality has always been a tough business and, in the current climate, any short-term easing in the insolvency figures shouldn’t be seen as a sign of sunlit uplands for the sector. Recent budget changes won’t have helped.”
