Insolvency experts are seeing a big rise in calls from struggling businesses as public sector spending cuts take their toll.
Research revealed that 10 per cent of firms feared they would collapse due to forthcoming Government cutbacks, while insolvency companies say their phones are ringing none-stop.
With business leaders eagerly awaiting the spending review on October 20, and a VAT increase on the way, confidence has taken a knock among firms in the West Midlands.
And experts are predicting a steep rise in insolvencies in 2011 as a result.
Martin Coyne, partner at Poppleton & Appleby in Birmingham, said: “In the last week alone we have been approached by three companies who have all suffered considerable loss of trade directly because of Government cut backs.
“Two have fallen victim to the decision to cut back on the schools improvement programme both on a national level with the cancellation of the Building Schools for the Future initiative and council improvements to schools on a local level.
“The other firm supplies services into public bodies in Birmingham and has found demand has been turned off like a tap and it has hit it very hard indeed.
“It is very difficult to predict what will happen after the spending review and while there is unlikely to be any loosening of the reins, there is a feeling that local authorities have just put the breaks on all spending because they fear the worst when George Osborne makes his announcement.”
Poppleton & Appleby warned just two months ago that small and medium size companies would feel the full impact of cuts in the third and fourth quarters of the year.
The Insolvency Service reported last month that there were 4,080 compulsory liquidations and creditors’ voluntary liquidations in England and Wales in the second quarter of 2010, which was an increase of 0.5 per cent on the previous quarter but a decrease of 19.1 per cent on the same period a year ago.
However, research from business recovery body R3 this week showed 150,000 small businesses across the UK face insolvency if their public sector contracts are cancelled.
Martin Williamson, director of Stoke-on-Trent-based insolvency firm IPD, has also seen a sharp rise in calls about insolvency.
“I have seen a big increase in the last six to eight months in companies calling about insolvency – particularly small to medium-sized companies with a turnover between £3 million and £5 million.
“Over the last 12 to 18 months it has actually been relatively quiet in terms of companies going into administration.
“More and more companies are coming to me for advice and saying, ‘If I close it down there are no other jobs around so I might as well keep going even though the company is going to close down’.”
Mr Williamson said that while many firms are currently living in fear, he expects a rise in companies collapsing next year when the full extent of the cuts have been felt.
He said: “I would expect more calls about Government cuts in November and December. At the moment it is unclear but after the spending review we will know. I think we are going to have a large number of insolvencies if not in the first half of next year then the second half. Companies have also got to cope with the VAT increase.”