Q3 2011 Red Flag Alert Report - Growing 'North South divide' in levels of business distress

Impact of public sector cuts starts to hit home

Begbies Traynor Red Flag Alert - the quarterly report which monitors a series of indicators of company distress - clearly shows the beginning of a divide between levels of financial distress in the North and the South.

There has been a material increase in problems in the past quarter across the North East, North West, Yorkshire, the Midlands, the East of England and Wales compared to decreasing distress in London and the South East, according to the figures released today.

Against a UK average rise of 2%, the number of businesses facing both significant and critical financial distress in the past quarter dropped by 6% and 3% respectively for London and the South East, while all other regions in England and Wales faced increased levels of distress.

Hardest hit was the beleaguered North East with a 19% increase in business distress, followed by the North West with a 12% rise. Yorkshire, the Midlands, Wales and the South West regions all saw increases in business distress of 10%.

In Scotland, where public sector cuts have come much later than in the rest of mainland UK due to the timing of the Scottish elections, levels of distress have fallen quarter on quarter, but the impact of recent and expected future cuts will not be felt in wider business distress for some time.

Ric Traynor, Executive Chairman of Begbies Traynor Group said:

“As the threat of public sector job cuts became a reality in the past few months, a North South divide has begun to emerge with the South East and London areas showing much greater economic resilience than the rest of England and Wales.

“Many of the regions worst affected – such as the North East and North of England – are heavily dependent on the public sector so it is telling that these areas are witnessing increased levels of financial distress.

“The UK is seeing widely varying regional distress levels as a variety of sectors see polarised levels of hardship. It is not surprising then, that we will end up with different areas seeing tougher economic times than others, especially where the public sector has historically been most important.

“Figures recently published by the ONS show that the second quarter of 2011 saw the number of public sector employees fall by 111,000 – the biggest fall since records began in 1999. This reduction in the employee base not only affects those individuals who have lost their jobs, but also local businesses dependent on public sector contracts.”

The below table shows combined problems (Significant & Critial) by region

Region
Q2
2011

Q3
2011

Percentage
change

Scotland

6,039

5,820

-4%

North East

2,261

2,691

19%

North West

9,842

11,057

12%

Yorkshire & Humberside

6,116

6,704

10%

Midlands

12,817

14,103

10%

East of England

2,593

2,676

3%

South East

29,155

28,244

-3%

London

20,719

19,461

-6%

South West

7,042

7,721

10%

Wales

2,610

2,864

10%

All Regions

99,194

101,341

2%