Insolvency expert’s fears over "tidal wave of debt"

A NORTH West insolvency expert has accused the Government of creating a “tidal wave” of financial problems – as a result of its softer stance on VAT and PAYE collection.

Paul Stanley, a partner with Begbies Traynor claims well-intentioned Government action will create a new bubble of bad debt because it is allowing some weak businesses to struggle along, rather than become insolvent.

He argues that although the recession is one of the worse ever seen, the number of business failures are still below expected levels.

“Although we are of course busier than this time last year, activity is nowhere near the level of the last economic downturn. So far in 2009, I have not dealt with one single company facing a winding up petition by the Government. The only explanation is that the Government isn’t chasing debt.

“If this effect is multiplied throughout the economy, the Government is causing a tidal wave of financial problems.”

Mr Stanley, best known for investigating the collapse of The Accident Group, claims  that a brief phone call by a business in financial difficulty to the tax office is enough to secure a 12 month VAT extension – essentially getting the equivalent of a 4.5% interest loan when their rivals pay double that at the bank.

 “Although it might look like the Government is providing a lifeline to struggling businesses, what is really happening is a distortion of what should be a free market.

“A natural selection process where strong, well-run companies survive and those with an unsustainable business model don’t creates a sustainable business environment and fair competition. But instead we are now in a situation where badly-run companies are able to undercut their rivals because they aren’t paying their tax bills.”

He concedes that the Government scheme is helping some good companies which are struggling through no fault of their own.

“Companies should treat the deferment of debt as an opportunity to restructure and assess the real business issues facing them so that they are well equipped to face the long economic winter ahead.

“Those who simply take the short term lifeline but don’t take the right advice and re-adjust will simply end up back at square one in 6-12 months time but with an even greater level of debt.”