Coronavirus accelerates downward trend in Scottish hospitality sector
With bars and restaurants across the UK reeling from the impact of social distancing measures, the latest Red Flag Alert data from insolvency specialist Begbies Traynor shows that the sector in Scotland was already under severe pressure with instances of ‘critical’ financial distress in the first quarter of 2020 rising by 500% compared with the same period the previous year.
The quarterly research, which monitors the UK’s financial health, indicates that beleaguered hospitality and leisure businesses have continued to struggle amid fears around Brexit and a global economic slowdown, ahead of the catastrophic impact of the COVID-19 health crisis.
In the first three months of the year, in Scotland, bars and restaurants showed a dramatic increase in ‘critical’ or advanced financial distress (which refers to businesses that have had winding-up petitions or decrees totalling more than £5,000 against them) both year on year (rise of 500%) and quarter on quarter (up by 800%).
Across the UK as a whole, ‘critical’ distress in the sector rose by 37% since the previous quarter; and rose by 20% since the same period in 2019.
Bars and restaurants in Scotland also saw 1,207 instances of ‘significant’ or early distress (ie businesses with minor decrees against them and those showing a marked deterioration in key financial ratios), a rise of 5% since the final quarter of 2019.
Looking across the sectors, the UK-wide figure for ‘critical’ distress rose by 10% since the previous quarter, while in Scotland there was an uplift of 56%; it fell by 1% across the UK as whole compared with Q1 2019, but rose by 10% year on year in Scotland.
Levels of the less advanced ‘significant’ distress were closer to the UK-wide average, rising by 3% since the previous quarter both across the UK and in Scotland (now representing 509,314 instances across the UK and 26,233 instances in Scotland); and by 5% across the UK and by 2% in Scotland year on year.
Levels of ‘critical’ distress in Scotland also continued to rise among support services businesses (up 650% since Q4 2019); and among real estate and property companies (200% rise quarter on quarter).
Ken Pattullo, who leads Begbies Traynor in Scotland, said: “For many businesses, particularly in consumer-facing sectors such as hospitality and retail, the post-Christmas period is the toughest, and this appears again to have been the case in the first three months of 2020, except, worryingly, much more so this year than last.
“The last couple of years of economic uncertainty has now been exacerbated by the unexpected and devastating impact of COVID-19 which may, unfortunately, prove to be the final straw for many businesses in these sectors and, indeed, in many others.
“While the government’s attempts to offer some support to businesses are welcome, the reality is that this ‘sticking plaster’ approach may well simply delay the inevitable. Previous recessions show that any serious economic shock results in a marked rise in insolvencies and this is likely to be the longer-term picture.
“However, this is an unprecedented situation and businesses should use all of the support available, from investigating their insurance cover and talking to the bank to calling on the expertise of professional advisers, in order to gain vital breathing space in the face of current challenges. And, with HMRC stating they will consider debt restructuring proposals, now is the time to consider how to cope beyond the initial breathing space provisions.”
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