Double-dip recession could destroy one in four small firms

Research finds 28 per cent of UK small businesses believe economic trouble would drive them to the wall

Going under: last year insolvencies were about 60 per cent up on 2007 levels

More than a quarter of small businesses in the UK would be wiped out if the economy suffers the much feared double-dip recession, research has suggested.

Figures released by Insolvency Trade Body R3 reveal that 28 per cent of small firms believe they would hit the wall if the economic climate worsens again.

Northern firms and those in the south east are the most pessimistic, with almost one in three of each predicting calamity if recession strikes again. Businesses in Wales and the south west are considerably more positive, with just one in five believing that insolvency would be likely.

Businesses in the hotel and catering sector are by far the most downbeat, with almost half being of the opinion that economic meltdown would spell the end of their firm. Manufacturing companies are at the other end of the scale, as just 19 per cent consider insolvency a real danger.

R3 president Peter Sargent said: “It is unsurprising that the services industry feels they will fare the worst if there is another dip, as, although we are technically out of a recession, many people do not feel the worst is over, so they are not splashing out on hotels and lunches. Post recession, the manufacturing sector tends to be the first to recover as people slowly start to demand more goods."

In 2007 there were 16,595 corporate insolvencies in the UK. This rose 37 per cent the following year, as the recession drove 22,792 firms to the wall. Last year saw 26,443 businesses go bust.

Wednesday's Budget saw Chancellor Alistair Darling extend the Time To Pay tax deferral scheme for four more years and Sargent claimed uptake of the programme pointed to the number of firms still in a precarious position.

“The journey back to recovery is slow and uncertain, and we advise any business owner who believes their company may be on the path to insolvency to seek help sooner rather than later," he said.

“It is easy to forget that banks are not a company’s only creditors. For many, their largest creditor is the government. With close to 300,000 firms in crucial Time To Pay tax arrangements with HMRC, it seems that a large number of businesses are in need of a financial health check.”