THE COLLAPSE of the popular discount high street retailer Wilko, with 12,500 of its workers facing being thrown out of a job, has thrown a spotlight on the precarious position of thousands of UK companies and the jobs of hundreds of thousands of workers.
How did a company offering a huge range of cut price goods in its 400 stores across the country collapse at a time when the cost-of-living crisis is driving millions to shop around for precisely such low prices as offered by Wilko?
The answer lies in the debt crisis that is driving thousands of companies across all sectors of the economy into bankruptcy.
Wilko succumbed to an unsustainable debt burden after taking out a £40 million loan from a ‘restructuring specialist’ after recording a loss of £36.8 million in 2022. Not that this loss or massive debt acquisition prevented the company from paying out a dividend of £3 million to its owners.
While commentators in the press have been quick to blame competition and Wilko stores being in the wrong location for the company’s collapse, the underlying reason is the massive debt it took on – debt which, with the constant hiking of interest rates by the Bank of England, became unaffordable.
Wilko is not the first or last company to go bust as the debt crisis explodes. Britain’s debt-laden ‘zombie’ companies will be wiped out by the surge in interest rates according to insolvency specialist Begbies Traynor.
The business recovery and financial consultancy made this prediction back in July before the latest hike in interest rates by the Bank of England which pushed the rate to 5.25% – the highest in 14 years.
Zombie companies are those that struggle to pay the interest on debts used to avoid bankruptcy through cheap borrowing costs.
Ric Traynor, chair of the company, said: ‘Over the next 18 months, we’ll see virtually all of them finally come to an end.’
Already, company insolvencies in England and Wales have hit a 24 year high with official figures from the Insolvency Service showing 2,552 companies filed for insolvency in May – 40% up on the previous year and the highest since 2009.
Traynor said that the insolvency crisis had first hit the lower end smaller companies but is now progressing to medium sized ones – with the implication that the big companies and corporations with even bigger debts will be next in line as all the zombies crash into bankruptcy.
This week, the National Institute of Economic and Social Research (NIESR) issued its own pessimistic forecast that the Tories will be fighting next year’s general election under conditions of economic recession and an ever-widening gap between the rich and poor.
In its quarterly update on the UK economy, the NIESR said that the poorest tenth of the population – who have been the hardest-hit by inflation – would need their wages increased by £4,000 a year just to return to the living standards of 2019.
Adrian Pabst from NIESR said: ‘The increasing inequalities facing poorer families are reflected in slower wage growth and fast-rising unsecured debt’ as spiralling inflation and no real wage growth ‘has involved new debt to pay for permanently higher housing, energy and food costs.’
British capitalism has reached the crunch point where all the failed attempts to bring down inflation by ramping up interest rates has inevitably led to all those companies that have survived on debt going bust, threatening the working class with mass unemployment.
At the same time, workers are being forced to take on unsecured debt just to survive day-to-day while both the Tories and the Labour Party insist that wage increases are unaffordable for a bankrupt British capitalist system.
Capitalism today is in its death agony, surviving only through massive debt that it will try to force the working class to pay.
The only way forward for the working class is to exert its massive power and put an end to capitalism by forcing the Trades Union Congress to call a general strike to kick out the Tories and bring in a workers’ government that will expropriate the bankers and bosses and bring in a nationalised and planned socialist economy.
Join the lobby of the TUC Congress in Liverpool on Monday 11th September, called by the WRP, to demand the TUC calls a general strike.
