AS THE DATE for the Tory government to end its financial support to British companies looms so the warnings about a cataclysmic crash of ‘zombie’ companies are becoming almost a daily event in the pages of the financial press.
Yesterday, the major corporate insolvency company Begbies Traynor issued a ‘Red Flag Alert’ over the imminent collapse of hundreds of thousands of UK ‘zombie companies’ when all the government support schemes end in the summer.
Zombie companies are those that survive entirely through loans from banks and, increasingly during the coronavirus pandemic, from government support schemes.
This support from the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme has kept these companies on life support.
Swamped by debt the zombies make barely enough profit to cover the interest on their debts which they will never be able to repay.
According to the data from Begbies Traynor, the number of companies in the UK that are now zombies has risen at the fastest rate in more than seven years.
They found that 100,000 more businesses were now in ‘significant distress’ in the first three months of the year.
This was despite the government ban on winding-up petitions – applications for businesses to be declared bankrupt – for those companies unable to repay debts run up during the Covid pandemic.
Over 720,000 companies in the country are now in the significantly distressed category which they define as businesses with minor county court judgments filed against them or which have ‘a sustained or marked deterioration in key financial ratios and indicators such as working capital, profits and net worth’.
Begbies Traynor’s research showed that companies facing collapse when financial support is ended are not confined to just a handful of vulnerable sectors of the economy but were rife in all 22 sectors they analysed.
The Tories have already ended some government support schemes under which they guaranteed bank loans to businesses and now the banks are demanding interest on the loans they handed out last year.
Julie Palmer, partner at Begbies Traynor, said: ‘The dam of zombie businesses could be about to break.’ She went on: ‘Unmanageable levels of debts and subsequent overtrading are likely to be the hidden icebergs waiting to sink even the highest profile businesses.’
The first wave of company collapses is expected as early as the end of June when government restrictions end on landlords demanding firms and companies repay a year’s worth of rent.
Last week, Mervyn King, the ex-boss of the Bank of England, issued a call for these zombie companies to be allowed to ‘disappear’.
The same demand was made even blunter by the head of Begbies Traynor, Ric Traynor, who insisted: ‘We must let zombie firms die so the strongest can thrive.’
In fact, as his own data show, there are no ‘strong’ firms that will survive and thrive. The whole of UK capitalism is drowning in debt, with zombie companies spread across every sector of industry, manufacturing along with retail and leisure.
In February this year, the think tank Institute for Public Policy Research published figures that 600,000 UK employers could collapse and that this would put 9 million jobs at risk.
The latest figure of over 720,000 of these companies means that unemployment would reach over 10 million in the coming months.
The entire British economy is on the brink of collapse, opening an era of mass unemployment that will be greater than the Great Depression of the 1930s.
10 million unemployed with wage-cutting fire and rehire for those workers who manage to keep a job is the price this bankrupt capitalist system intends to impose on the working class to escape its massive debt crisis.
The working class will not accept mass unemployment and poverty as the price to pay to keep capitalism from collapse.
The working class must prepare for the inevitable conflict by building the revolutionary leadership of the WRP and Young Socialists to organise a general strike to kick out the Tories and bring in a workers’ government and a socialist planned economy.
Socialist revolution is the only answer to mass