The Business Distress Index Q3 2021

Small to medium-sized enterprises (SMEs) across the UK are continuing to fight back following the effects of the pandemic, according to our latest Business Distress Index. 

From analysing new data looking at how businesses fared during the third quarter of this year (July to September 2021), the findings demonstrate a real change for SMEs escaping significant distress. SMEs are continuing on a general upward trajectory, likely due to the easing of almost all national and local restrictions from the pandemic. However, with the COVID-19 Omicron variant causing further panic in the winter months, it remains to be seen whether this bounce will be curtailed.

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How many SMEs are in distress?

The total number of SMEs in significant distress in Q3, 2021, is 562,500 – this is a -12.6% decrease versus the previous quarter, meaning that 81,000 businesses are out of significant distress. This suggests that with the UK getting back to some element of “normality”, business has picked back up. 

However, this quarter’s figures are not all good news. With government support for businesses, such as the VAT rate reduction for hospitality, holiday accommodation and attractions and the VAT Deferral Payments Scheme coming to an end on the 31st March, 2021, there has been an uplift in business insolvencies reported this quarter at 3,765 - a 21% increase versus Q2. This is the highest quarterly business insolvency figure since before the pandemic and the most quarterly liquidations since June 2009.

With a higher number of insolvencies, it’s surprising that there are less jobs in danger this quarter. In all, 2.61 million jobs have been held by businesses in distress, this is a 13% decrease on the three million jobs held by businesses in distress in Q2.

How has the reopening of the UK economy affected business distress?

Despite the rise in insolvencies, the overall picture is positive with 81,000 SMEs out of significant distress and decreasing levels of regional distress. In fact, the data shows a drop in significant distress across all regions in the UK, with Northern Ireland taking the lead with an -18% improvement on Q2. This is followed by the North East, Scotland and Yorkshire seeing a drop of -15% of SMEs in distress.

The UK’s capital has seen a -14% decrease in SMEs in distress, suggesting the capital is keeping pace with the rest of the UK, but not leading the overall reduction in distress figures. 

Elsewhere, the South West has seen the smallest decrease in distress figures compared to all of the regions and countries in the UK at just -13%.

Which SME sectors have the most jobs in danger?

Despite there still being 2.61 million SME jobs in danger in the UK, Q3 saw a 13% improvement on the last quarter, with 390,000 fewer jobs in danger. The consumer boom over the summer, alongside the easing of COVID-19 restrictions, played a major part in helping to stabilise the UK economy, but certain sectors have benefited more than others. 

According to our data, the support Support Services sector - covering jobs relating to the renting and leasing of goods, vehicles and equipment - holds the highest number of jobs in danger (457152) due to businesses in distress in Q3, even though this is a 13% decrease on the previous total figure of jobs in danger in Q2. The sector that has seen the largest decrease in jobs in danger in Q3 2021 is the Construction sector, with a 17% decrease versus the previous quarter of jobs in danger.

How do 2021’s Q3 distress figures compare to 2020’s Q3 business distress figures?

Comparing this quarter’s figures with last year’s quarter three figures, we can see that London has seen the biggest increase in jobs in danger - a 4% uplift of jobs no longer at risk.

Northern Ireland saw the biggest improvement on businesses in distress versus this year’s previous quarter. When comparing the jobs in danger to quarter three in 2020, Northern Ireland has also seen the biggest improvement in jobs in distress, with a 5% reduction of jobs at risk. 

In terms of sectors that have seen the biggest increase of jobs in danger compared to Q3 2020,  the Real Estate & Property Services recorded the highest number of job threats - a 13% increase. 

Despite the overall picture of SMEs in distress looking healthier across the region, insolvencies and liquidations are still rising. Shaun Barton, National Online Business Operations Director at Real Business Rescue, commented:

“Our report on Q3 SMEs in distress paints a brighter picture for business across the UK. As companies continue to recover from the impact of COVID-19, this latest quarter saw the highest number of SMEs moving out of distress since before the pandemic. This could be seen as a direct result of the summer surge in consumption, as well as businesses getting back to their regular routine following numerous lockdowns – evident in the almost 18% improvement for the Construction sector”.

“While the report shows many positive results, there are still concerns among SMEs as other elements are at play; from rising inflation and material and labour availability to the payback of COVID-19 loans alongside the drawback in government support. This quarter saw the highest insolvency figures since before the pandemic, as well as the highest liquidation figures in the last twelve years – both rising numbers that are a serious cause for concern”.

“While many businesses struggled throughout the pandemic, some were brave enough to start up over the last year. In such a difficult environment, it’s not surprising to see a rise of businesses under a year old finding themselves in financial distress, with young companies in the hardest-hit industries such as Real Estate falling in this category”.

“While the overall picture is healthier – with SMEs across the country from previously struggling industries showing strides towards recovery – some businesses are continuing to fight against the current challenges. With some, sadly, succumbing to the mounting pressure following the winding back of government support”.