ONS analysis: rising insolvencies and the effects of high energy prices

Company insolvencies in England and Wales are at their highest quarterly level since 2009, according to a report released by the Office for National Statistics (ONS) last week.

Arguably, the increase in insolvencies reflects the return to the natural status quo since the lifting of government support measures introduced during the pandemic. However, the number of insolvencies in the second quarter of 2022 was higher than pre-pandemic averages, suggesting that other factors, such as energy prices, substantial debt burdens, the rising cost of raw materials and supply chain disruption are playing a significant role in the current trends.

Unsurprisingly, energy prices are a growing key concern for businesses surveyed by ONS. The three industries recording the highest number of insolvencies in the first half of 2022 – construction, wholesale & retail trade and accommodation & food service – all cited rising energy prices as one of their main concerns. Construction has seen the highest number of insolvencies so far in 2022 with these businesses perceiving inflation in the cost of raw materials, which is directly influenced by energy prices, as their primary concern. The wholesale and retail sector has seen the second highest number of insolvencies so far this year and, as a sector which is heavily reliant on gas (accounting for almost 31% of the industry’s total fuel consumption in 2020), this trend could continue through the winter months.

The ONS also reports that the number of businesses considering raising their prices to cover increased energy costs is at a record high in 2022. The Energy Bill Relief Scheme will give certain businesses discounted gas and electricity unit prices from 1 October 2022 to 31 March 2023. This may lessen the strain on some businesses in the short term, but these savings will not necessarily be passed on down the supply chain to the benefit all businesses susceptible to the volatility in energy prices.