There was a 75% increase in the number of educational organisations filing for administration in 2023 when compared with 2022 – according to analysis by full-service law firm Shakespeare Martineau.
A total of 1,641 businesses – 16 of which came from the education sector, compared with four in 2022 – filed for administration last year, marking a 22% increase compared to 2022 and 91% rise in comparison to 2021.
Retail, construction, hospitality, manufacturing, and real estate were the worst-hit sectors, collectively accounting for 59% of the administrations. Regionally, Greater London led the way with 22% of the filings, followed by the North West (14%) and South East (12%), data from The Gazette Official Public Record has revealed.
Sean Moran, litigation partner specialising in education at Shakespeare Martineau, said:
“Many of the educational establishments were independent schools, along with some specialist educational and training centres.
“Nevertheless, all providers in the sector – like any other businesses – are not exempt from the combined effects of the challenging financial climate, with high interest rates, inflation and increasing utility costs impacting on the ability of universities, further education colleges and schools to deliver a first-class service to learners.
“Independent schools in particular are also impacted by the increase to employer contributions to the Teachers’ Pension Scheme, which will rise from 23.6% to 28.6% from 1 April 2024 and many are leaving the scheme to avoid this additional cost.
“Coupling these challenges with the ongoing geopolitical uncertainties experienced over the past 24 months has created a perfect storm for providers in the education sector. While many institutions will be well-prepared to deal with the uncertain economic and financial situation and will have to balance the increases in the cost of teaching, student support and research funding against potential underfunding and a reduced demand for places, there is a risk that the spread of insolvencies will extend into the FE and even HE sectors.
“Universities, colleges and schools will all have specific and distinct challenges, depending on their governance and funding model, but all should keep financial stability at the forefront of their strategies for 2024 and beyond.”
While January (76) was the quietest month, administration numbers leapt to 177 in October – the most recorded for 43 months (185 in March 2020).
With administrations nearing pre-Covid levels (1,794), an insolvency and restructuring expert has warned that sustained difficult trading periods combined with rising geopolitical tensions means we could see more businesses failing throughout 2024.
Andy Taylor, partner and head of restructuring at Shakespeare Martineau, said:
“The significant uptick in the number of companies filing for administration in 2023 underscores the challenges faced by businesses amid changing consumer habits, financial pressures, and geopolitical uncertainties.
“In the labyrinth of economic complexities, the retail sector in particular is bearing the brunt, noted by the collapse of major player Wilko. There has also been a reduction in housebuilding, which has a knock-on effect in the construction and real estate sectors.
“The cost of money, marked by high interest rates throughout 2023, exacerbates financial strains on businesses with models that thrived in a sub-2% interest rate environment. Organisations can only bear that pressure for so long before its sustained impact starts to wash through and they begin running out of cash.
“A shift in consumer buying habits, exemplified by a challenging January for the hospitality sector, adds to the narrative of subdued spending. Moreover, HMRC continues to be more active, with threatened enforcement pushing businesses towards considering their options, and many opting for administration as an alternative to being wound up on a compulsory basis.
“The global stage, marked by geopolitical tensions in Russia-Ukraine and Israel-Gaza, contributes to economic uncertainty and suppressed growth. Businesses reliant on imports face increased outlays, as shipping companies opt to avoid the dangers of the Suez Canal and seek to pass on the extra costs of transport to customers.
“Many predict the rate of inflation to continue its downward trajectory in 2024, perhaps even approaching Bank of England’s target of 2%. If that trend continues one might anticipate something like three interest rate cuts in 2024, which will hopefully stimulate growth. However, the economic landscape remains unpredictable, and our advice remains consistent – seeking professional advice early can open up more options for struggling businesses.
“It is crucial not to ignore the signs and bury your head in the sand and instead, take a proactive approach to address underlying issues. By doing so, businesses can better navigate the tough trading conditions and increase their chances of survival.”