Restaurant sector failures result in record Insolvency Service pay-out

Empty kitchen

Insolvencies were at their highest level since 2012 last year, driven by failures in the hospitality and retail market.

The Insolvency Service paid out a total of £346m from the National Insurance Fund to former members of staff as a result of their employer either entering administration, liquidation or another form of corporate insolvency in 2019.

A total of £222m was paid out in redundancy pay whilst £64m was for money that would have been earned working a notice period.

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£18m went on unpaid holiday pay and £41m on outstanding payments for wages, overtime and commission, according to analysis from real estate adviser Altus Group.

The amount paid was up by 16% on the previous year, the equivalent of more than £48m.

Altus said the increase was as a result of a rise in insolvencies across the retail and hospitality sectors.

Underlying company insolvencies in England and Wales in 2019 rose by 3.9% across the retail sector while insolvencies at accommodation, food and beverage establishments rose by 10.4%.

High streets the length and breadth of the country have been battling a perfect storm of rising costs from business rates, historically high rents and minimum wage rules at a time of falling sales amid uncertainty last year over Brexit resulting in subdued consumer confidence.

The new chancellor, Rishi Sunak, is already under intense pressure to reform the business rates system as high street firms blame the tax for the growing number of insolvencies.

Robert Hayton, head of UK business rates at Altus Group, says that whilst business rates are rarely the sole driver for insolvencies, they certainly are a contributory factor.

“A fair and reformed system is within our grasp. If we are serious about ‘levelling up’ the economy to help struggling towns, rates bills must fall in line with declining rents whilst speeding up meritorious business rates appeals has to be a government priority.

“Bringing some respite to the financial burden of rates through ending annual inflationary rises whilst incentivising, rather than penalising, investment will all deliver long term lasting benefit to the economy as a whole.”

Councils in England last week said business rates income for 2020/21 will be £25.6 billion, an increase of £649m, up 2.6% on 2019/20.

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Andrew Seymour

The author Andrew Seymour

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