Northern England SMEs in dire financial straits

While small and medium-sized businesses in the north of England saw their performance improve over the past year, the region’s low level of financial strength has left many in a perilous position for months to come. A new study has found that many more mid-sized businesses in the North face acute levels of distress than the national average – a trend that is particularly pronounced in the North West.

Originally proposed by the 2010 coalition government, the Northern Powerhouse scheme aims to strengthen historically neglected regional economies beyond London, particularly in the ‘Core Cities’ of Manchester, Liverpool, Leeds, Sheffield, Hull and Newcastle. Since its official launch in September 2016, the project has worked to champion policy ideas aimed at improving the quality of life, economic regeneration and promoting the North as a place to work, study, live and work. ‘investment.

However, six years after the start of the Northern Powerhouse scheme, it remains to be debated whether it has significantly boosted the region’s economy. According to recent research by business consultancy firm Quantuma, the post-lockdown period has seen markedly average growth in the North. According to the firm’s calculations, SMEs in the region achieved a ‘growth score of 49, and while this is significantly stronger than the 43 scored by London, it is well behind Scotland, the South West , Wales, the Midlands and the East of England.

And although the North is growing faster than London on this basis, it has the lowest ‘financial strength score’ in the UK. Much of the economic activity in the North has been driven by a strong manufacturing sector, while other sectors showing strong growth include construction, education, agriculture, retail and trade in big. With the UK economy facing major headwinds, however, as demand falls, relative financial weakness in the North could see these gains quickly dissipate.

Frank Ofonagoro, head of Quantuma’s financial advisory team in the North West, said: “Like many other parts of the UK, the North of England has experienced unprecedented levels of distress over the past past two years and while it is encouraging to see some of the positive insights into SME growth, other challenges await the North West business community. For companies facing increased pressure on cash flow and their balance sheet, the sooner they examine and diagnose the reasons for underperformance, the more time they will have to identify and implement relevant recovery options.

The number of distressed businesses in the North is already much higher than in the rest of the UK. Although Quantuma found that the number of SMEs identified as suffering from lower levels of stress – between 4% and 8% – was slightly lower than the UK average, the number of SMEs exposed to higher levels of stress was significantly higher .

Evolution of distress in the region: Distress levels in the region have remained stable

The number of Northern SMEs experiencing 8% to 15% distress increased at the start of 2022, while the national average fell. This was particularly pronounced in the North West, where around 4,000 businesses identified this level of distress. And while the number of SMEs in the most acute distress of 15% to 25% fell in the North West at the same time to around 2,000, it remains well above the national average – even if this figure is increasing.

This puts a large number of jobs at risk, particularly in the North West, which has long been touted as the frontrunner for the Northern Powerhouse project. According to Quantuma, of workers working in companies in financial difficulty, 95% in Manchester work in the 8% to 15% category.

Manchester and nearby Salford have quickly become Britain’s top tech hubs in recent years. With many start-ups and SMEs having flocked to the region for this reason, however, many businesses could face destabilization if the region’s economy continues on its current streak.

Sarah J. Greer