10,500 Scottish firms to go bust by end of 2010

MORE than 10,000 Scottish businesses could fail in the next two years, according to the latest grim forecast on the prospects of companies surviving the recession.

About 75,000 UK firms, one in 50, will collapse over the course of 2009-10, according to accountants and business advisers BDO Stoy Hayward LLP.

BDO's Industry Watch Report said that would equate to 5,000 business failures in Scotland this year and 5,500 in 2010. Experts said this would have a devastating effect on small businesses north of the Border.

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The economy is contracting at its fastest rate since the Second World War, with the number of business failures increasing by 59 per cent by the end of this year. In 2008, 22,600 firms across the UK went bust, but analysts warned the worst was to come. Shay Bannon, head of business restructuring at BDO Stoy Hayward, said: "The deteriorating economy and expectations of a drawn-out recession have led to a downward revision in the UK outlook and have severely impacted the survival rate of UK businesses."

Worst affected by the downturn across the UK will be firms in real estate and construction, where 3.2 per cent of firms – 10,300 – will close, followed by manufacturing where 2,300 businesses – or 2.3 per cent of companies – are predicted to go to the wall.

This is put down to falling corporate demand, shattered business confidence and a slowdown of 1.8 per cent in consumer spending. Investments are also forecast to fall by 15.6 per cent this year.

Colin Borland, of the Federation of Small Businesses Scotland, said the figures were alarming for Scotland, where around 275,000 of 280,000 companies employ fewer than ten people. Business failures were particularly harmful for smaller firms as these often employed more than one family member and loans were secured against homes, he added.

But Mr Borland said: "Smaller firms are also more adaptable to adverse market conditions. They don't have to present their ideas before a board and find it easier to scale back in one area more quickly than larger companies.

"At the moment, the priority seems to be business start-ups whereas it should really be survival. That is what everyone is focusing on."

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said the downturn seemed to be affecting traditional industries that survived previous fall-outs.

She added: "The key to halting the projected increase in business failures is firmly with providing access to finance at competitive and affordable rates. Finance remains the key to sustaining many Scottish businesses and we must all do more to ensure businesses get support."

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David Lonsdale, assistant director of CBI Scotland, said the figures were in line with the business body's own forecasts. He added: "It is not surprising that a number of companies are predicted to fold given the downturn in the economy, the problems of cashflow and the lack of proper access to finance."

He urged the UK and Scottish Governments to take action on the access to credit. Some smaller firms in Scotland were particularly struggling as access to finance was more difficult, he said.

However, Mr Lonsdale said there could be a silver lining with transport, energy and housing infrastructure projects due to go ahead: "A lot of Scotland's financial services industry is much wider than banking. Insurance, investment advice and fund management – these areas should take on even more importance during a downturn and will pick up."

The report came out ahead of the national economic forum on Wednesday when John Swinney, the Scottish Finance Secretary, will pledge to increase the pace on his economic recovery programme.

JOB centres have been closed in some of Scotland's worst unemployment hotspots, fuelling accusations of government complacency.

Hundreds of Job Centres across the UK have closed in the last six years – and more than 50 have shut in Scotland, according to research by the Conservatives.

The closures have even hit areas where unemployment has almost doubled over the last year, such as Haddington in East Lothian, where the jobless number surged by 97 per cent, and Galashiels, where unemployment soared by 93 per cent.

Theresa May, the Shadow Work and Pensions Secretary, said: "This just goes to show how complacent Labour has been about Britain's growing unemployment crisis. Instead of providing extra support when unemployment began to rise, Labour continued their programme of Job Centre closures. Now unemployment is almost doubling in some parts of Scotland and there simply aren't the resources to cope."

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But James Purnell, the Work and Pensions Secretary, said the government was spending an extra 2 billion on staff to help people have their claims processed quickly.

"The fundamental thing is we are spending an extra 2 billion to have more people working for us to be able to help people have their claims processed quickly and help people get back into work quickly.

"It is harder for people to find work at the moment; it's very worrying for people around the country and we are dedicated to making sure we help people get back into work as quickly as possible, as well as sorting out the banks, investing in the economy, getting all this solved at a global level, so we keep as many people in work as we possibly can."

Analysis from the TUC published yesterday showed that in some parts of the UK, there are ten applicants for every job.

In one example, a communications post at a Scottish council saw applications from exceptionally high-calibre candidates from the Scottish press.