'Zombie' firms on the increase in the UK

The number of ‘zombie’ companies in the UK now totals 339,800, a year-on-year increase of 5.5 per cent, according to research from corporate financial health monitoring specialists, Company Watch.

A zombie company is one which suffers from significantly negative balance sheets; where their liabilities exceed their assets by more than £5,000.

The total number of zombie firms has soared by 219 per cent since 2009; at a time when there were only 109,383 acknowledged.

The combined figure of negative equity for zombie companies now amounts to almost £72 billion, up from £69 billion last October.

More worryingly, the combined deficit was only £31 billion back in 2009. It’s an eye-watering amount when put into context; it’s almost twice the government’s defence budget, three-quarters of UK education spending and over half of government expenditure on the NHS.

The worst-hit sectors for zombie firms are media and business services companies, which make up more than a third (37 per cent) of the overall total.

The retail and construction sectors are also vulnerable to thin profit margins and strong downward price pressures, thought to be aggravated by the survival of a bloated number of uncompetitive firms.

Nick Hood, business risk analyst at Company Watch, said: “With insolvency appointments dropping precipitately and zombie numbers rising steadily, it looks like the entire UK economy has been infected by the pernicious influence of the ‘delay and pray’ mentality, which is simply storing up problems for the future and is severely distorting competition.

“We now have almost 240,000 businesses which can do no better than just stagger on, barely able to keep their creditors at bay and desperate to win work at any price.

“Without the normal clearing out of dead commercial wood, which traditionally takes place after a recession, it is difficult to see how Britain can achieve the productivity and sustained growth it so desperately needs to reduce the deficit and bring an end to the numbing grind of austerity.”

Date published 27 Nov 2014 | Last updated 27 Nov 2014