'No end in sight' warning as shock rise sees Scottish business distress levels outpace UK

Scottish businesses have seen a shock rise in advanced financial distress levels as tough times begin to bite.

Releasing its latest Red Flag Alert data, business rescue and recovery specialist Begbies Traynor said that over the past quarter, advanced financial distress among businesses north of the Border had started to soar compared with other parts of the UK. The report revealed that for the three months to September, there was a 112 per cent surge in the number of businesses in “critical” distress, which refers to companies that have financial problems such as decrees of more than £5,000 filed against them, in Scotland compared to the same quarter the previous year. The figures also revealed a 37 per cent rise since the second quarter of this year.

Across the UK as a whole, this type of advanced distress saw a much smaller annual increase of 25 per cent and a quarterly increase of just 7 per cent.

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Begbies Traynor’s figures also showed a rise in the number of firms displaying early or “significant” distress, which includes having had decrees of less than £5,000 filed against them. In Scotland, critical distress increased by 3 per cent on the previous quarter - and 5 per cent year-on-year. The data shows that in the third quarter of 2022, some 30,100 firms in Scotland displayed symptoms of this type of early stage distress. The UK-wide figures showed a 4 per cent uplift since the second quarter of 2022 and an 8 per cent rise compared with the same period the previous year, with more than 600,000 firms suffering “significant” distress in the latest quarter.

In Scotland, the sectors which saw the sharpest increase in significant distress year on year were real estate and property services (up 17 per cent), wholesale (16 per cent), industrial transportation and logistics (10 per cent), and food and beverages, travel and tourism, and media (all up by 8 per cent). Only five sectors - bars and restaurants; health and education; hotels and accommodation; printing and packaging; and sport and health clubs - experienced a decline in significant distress compared with the same period the previous year.

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “With businesses continuing to face challenges including supply chain issues, soaring gas and electricity prices as well as shortages of raw materials and labour, economic prospects are bleak and there’s no real end in sight.

“Already, we are seeing the pressures of higher costs and falling consumer optimism weighing on businesses still reeling from the impact of the pandemic. In addition to coping with the fallout from the current cost of living crisis, many businesses are now facing the challenge of repaying debt such as the government’s bounce back loans. It is particularly concerning to see such stark increases in levels of advanced distress here in Scotland, with the latest quarter showing levels four and a half times higher here than the rise seen across the UK as a whole.

“With worry about spiralling energy costs, inflation and mortgage rates threatening to curtail household spending, confidence is falling among businesses too,” he added.

Ken Pattullo, managing partner for Begbies Traynor in Scotland.