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Government warned as profit warnings and insolvencies soar

Rising costs and unsteady consumer confidence contributed to an increase in profit warnings and insolvencies last year, with the government warned it must take action to support the high street.

Profit warnings hit a two-year high in the three months to December 2017, up 11% compared to the previous year, with retailers among those dominating missed targets, with a third of FTSE General Retailers issuing profit warnings in 2017, according to a report by business services firm EY.

So far in January, Debenhams, Moss Bros and Mothercare have all issued profit warnings after revealing disappointing Christmas trading results. However, in general, profit warnings from apparel retailers halved during 2017. 

Jessica Clayton, head of retail transaction advisory services at EY, commented: “Retailers are working hard, but the restructurings announced before Christmas underlined how hard it is to outrun this relentless margin squeeze. We may have hit the peak of inflation, but prices still look set to run ahead of wages for most of 2018, while other cost and competitive pressures remain.”

The number of corporate insolvencies during the whole of 2017 also edged up by 2.5% across England and Wales, according to figures from the Insolvency Service.

Both of these rises were attributed to flagging levels of consumer confidence and struggles around rising costs, including business rates.

As a result, the Treasury Select Committee has called on the government to provide more assistance to retailers, saying that: “business rates damage the competitiveness of shops on the high street” and “the government should address the property taxation imbalance between businesses on the high street compared to those based on major out of, or edge of town, retail parks, and online businesses.”

Business rates revenue is forecast to hit £30bn for the first time this April. Alex Probyn, president of business rates at Altus group, said: “Taxation of the digital economy is already on the political agenda and it needs to be addressed this year, but the government shouldn’t distort the business rates system. That’s not the right mechanism for rebalancing bricks and clicks. The solution is bound to be a difficult and challenging one.”

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