Facts are stubborn things, but statistics, according to Mark Twain, are pliable. While the author of Tom Sawyer likely wasn’t thinking about the annual UK insolvency statistics, they certainly illustrate his point. The Telegraph uses the 2024 statistics, released Tuesday, to criticise Rachel Reeves, suggesting that an increase in compulsory liquidations in 2024 is a direct result of the October budget. Given that the financial impact of the budget will not be felt directly by businesses until April 2025, this is very much a case of putting the cart before the horse.

The rise in compulsory liquidations, driven by creditors, does indicate that (after being relatively lenient during Covid and its immediate aftermath) creditors are becoming less willing to extend grace periods for struggling businesses. On the other hand, a 5% overall decline in insolvencies from 2023 (and an 8% decline in creditors' voluntary liquidations (CVLs) – where a company initiates its own liquidation) perhaps reflects a tentative improvement in the business environment.

Reports on insolvency trends often focus on the negative, but the latest statistics also show cautious signs of recovery after a period of immense challenges. All things considered, it is a testament to the resilience of UK businesses that insolvency levels have begun to fall back, in the latter half of 2024, from the historically high levels of the previous two years. It is also encouraging to see from the statistics that the use of rescue procedures (as opposed to terminal liquidation) seems to be coming back into favour after record lows in 2022. Administrations have increased 30% compared to 2022 (2% from 2023), while the use of company voluntary arrangements (CVAs) has increased an incredible 83% on 2022 figures (9% year on year). Meanwhile, with ten moratoriums and nine restructuring plans registered in 2024, the use of these relatively new procedures continues to develop.

Businesses are not entering 2025 without challenges. There are significant concerns that the increase in minimum wage and national insurance contributions in April will squeeze already tight margins, particularly in sectors like hospitality and retail, potentially leading to more insolvencies. However, if inflation and interest rates continue to move (albeit slowly) in a favourable direction, we might reasonably hope that insolvency rates will remain relatively stable in 2025, even if it might be overly optimistic to predict a continued downward trend at this stage.