Reen Blake-Carr investigates the number of businesses that are in danger of insolvency in the WMCA and discusses some of the factors that might be causing this issue.
Much like how the UK is suffering record levels of insolvencies from multiple economic shocks like Covid, the cost-of-living crises and rampant inflation -so has the WMCA. This blog will focus on the local authority areas that make up the WMCA and identify how many businesses are in danger of insolvency and which sectors have the highest rates of businesses in trouble (see my previous blog on pre-insolvency measures for the 11 core cities).
This blog uses data that has been provided by Red Flag Alert to assess how many businesses are at risk of becoming insolvent using the Red Flag Measure. This measure indicates companies that are at risk of failing or becoming insolvent. One flag would indicate a company that is in danger but can still change its situation, moving to three flags, the highest level of jeopardy.
The geography used is local authority level and the data is provided by Red Flag alert who obtain their data from sources such as companies house which is constantly updated with the latest figure on number of businesses currently active in the UK.
Companies at risk of insolvency in the WMCA area:
| Local Authority | Total Businesses | Businesses with one red flag | % of total businesses with one red flag |
| Birmingham | 94,260 | 8,214 | 8.71% |
| Wolverhampton | 20,465 | 1,633 | 7.97% |
| Coventry | 26,816 | 2,195 | 8.18% |
| Dudley | 22,975 | 2,069 | 9% |
| Sandwell | 23,033 | 1,839 | 7.98% |
| Solihull | 17,098 | 1,814 | 10.6% |
| Walsall | 18,266 | 1,425 | 7.8% |
Birmingham:
Sectors with the most companies with one red flag:
| Sectors | Number of Companies | % of total businesses with one red flag rating |
| Manufacturing | 534 | 0.56% |
| Construction | 744 | 0.78% |
| Wholesale & Retail Trade; Repair of Motor Vehicles and Motorcycles | 1,544 | 1.63% |
| Accommodation and Food Services | 625 | 0.66% |
| Information and Communication | 604 | 0.64% |
| Real Estate Activities | 1,125 | 1.19% |
| Professional, Technical and Scientific Activities | 1,129 | 1.19% |
| Administrative and Support service activities | 1,009 | 1.07% |
Wolverhampton:
Sectors with the most companies with one red flag:
| Sectors | Number of Companies | % of total companies with one red flag rating |
| Construction | 214 | 1.04% |
| Wholesale & Retail Trade: Repair of Motor Vehicles and Motorcycles | 361 | 1.76% |
| Professional, Technical and Scientific Services | 184 | 0.89% |
Coventry:
Sectors with the most companies with one red flag:
| Sectors | Number of Companies | % of total businesses with one red flag |
| Construction | 239 | 0.89% |
| Wholesale & Retail Trade: Repair of Motor Vehicles and Motorcycles | 434 | 1.61% |
| Real Estate Activities | 275 | 1.02% |
| Professional, Technical and Scientific services | 359 | 1.33% |
Dudley:
Sectors with the most companies with one red flag:
| Sectors | Number of Companies | % of total businesses with one red flag |
| Manufacturing | 233 | 1.01% |
| Construction | 354 | 1.54% |
| Wholesale & Retail Trade: Repair of Motor Vehicles and Motorcycles | 394 | 1.71% |
| Professional, Technical and Scientific services | 299 | 1.30% |
Sandwell:
Sectors with the most companies with one red flag:
| Sectors | Number of Companies | % of total businesses with one red flag |
| Construction | 389 | 1.68% |
| Wholesale & Retail Trade: Repair of Motor Vehicles and Motorcycles | 361 | 1.56% |
| Transportation and Storage | 318 | 1.38% |
Solihull:
Sectors with the most companies with one red flag:
| Sectors | Number of Companies | % of total businesses with one red flag |
| Construction | 300 | 1.75% |
| Wholesale & Retail Trade: Repair of Motor Vehicles and Motorcycles | 247 | 1.44% |
| Real Estate Activities | 245 | 1.43% |
| Professional, Technical and Scientific Services | 309 | 1.8% |
Walsall:
Sectors with the most companies with one red flag:
| Sectors | Number of Companies | % of total businesses with one red flag |
| Manufacturing | 137 | 0.75% |
| Construction | 229 | 1.25% |
| Wholesale & Retail Trade: Repair of Motor Vehicles and Motorcycles | 252 | 1.37% |
Factors behind the risk of insolvency
When looking at the tables above there are several sectors that are at high risk of insolvency in the WMCA region.
Businesses in the real estate sector have experienced challenges with the current economic market due to higher interest rates and borrowing costs. Many potential first-time buyers are unable to afford borrowing costs to buy their first home, with the UK base rate at 5.25%. This also has an impact on current homeowners and their ability to move to new properties. The sector has seen 0.4% drop in activity in the latest quarter.
The Professional Services sector has seen many red flags for businesses per Local authority. This could be due to several different factors. Increasing energy prices push up running costs for businesses. At the same time, high levels of Inflation reduce customers’ spending, so they no longer use that firm anymore, creating a dual effect of increasing costs whilst reducing income.
Note on blog
A current limitation of this blog is that for readability and size constraints, not all sectors could be added to this blog for each city region – so the sectors with the highest amount of businesses with one red flag were chosen.
This blog was written by Reen Blake-Carr, Policy and Data Analyst, City-REDI / WMREDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WMREDI or the University of Birmingham.