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Over 90% of UK Cities Exceed the Average National Debt Per Business

The UK saw an alarming increase of borrowing in 2017, compelling the Bank of England to issue a warning about the risk of rapidly rising debt to the UK economy. But this warning was related to consumer borrowing and so far, the UK economy seems to be unaffected. Moreover, there has been a higher-than-expected growth in the last quarter of 2017. However, the issue of debt prompted Turnerlittle.com to investigate the levels of lending by UK businesses.

SMEs Borrowing in 2017 Stable but Regional Distribution of Business Debt Extremely Uneven

To find out how and whether the country’s debt crisis affected UK businesses, Turnerlittle.com analysed the latest data on SME borrowing levels from UK Finance which includes statistics on SME lending by the leading UK banks including Barclays, Lloyds Banking Group, Nationwide Building Society, HSBC and other lenders. This data excludes large businesses with more than 250 employees, however, since SMEs make up over 99% of all businesses, it is a good indicator of the overall debt levels for UK businesses.

Analysis of the UK Finance data on bank support for SMEs reveals that unlike consumer borrowing, SME borrowing in 2017 remained stable. Furthermore, the statistics reveal that there has even been a decrease in SMEs demand for bank finance compared to a year ago. Tunerlittle.com also analysed the UK Finance data on the geographic distribution of SME lending and found that regional distribution of business debt is extremely uneven, with 7 out of 12 regions exceeding the average national debt per business – £33,840.

SMEs in Northern Ireland Owe More than Four Times as Much as Their Counterparts in East England

Comparing the data on business lending from UK Finance and the number of active businesses from the ONS dataset on Business demography, Turnerlittle.com discovered a significant regional difference in the levels of SME lending. With a debt of £98,192 per business, SMEs in Northern Ireland owe more than four times as much as their counterparts in the East of England – £22,472 per business.

With a debt of £26,049 per business, the South East is the second least indebted region after the East of England, followed by the East Midlands at £28,290 per business and surprisingly –London with a debt of £30,410 per business. The highest debt per business after Northern Ireland was observed in the South West (£44,838), followed by Scotland (£41,975) and Wales (£41,972).

The Difference Between the Most and Least Indebted City Per Business Nearly than 20-Fold

Turnerlittle.com also looked at the UK Finance data on business lending by cities and towns and instantly noticed a major difference in the levels of business debt across the UK. But since towns and cities with a higher concentration of businesses were expected to have high levels of SME borrowing, the data on SME lending by postcode was compared with the number of active businesses in that area, again using the ONS dataset on Business demography. In total, 71 cities and towns across the UK were analysed.

With a staggering debt of £357,770 per business, Exeter is deemed the worst city for business debt in the UK, followed by Gloucester (£296,110), Ipswich (£233,171) and Norwich (£229,074). The difference between Exeter and Sutton, which has the lowest debt per business – £18,825 is thus nearly 20-fold. The second lowest levels of debt per business after Sutton was observed in Wigan (£21,812), Sunderland (£24,576), Luton (£27,391) and Leeds (£30,425).

The National Average Debt per Business is Exceeded by More than 90% of Analysed Towns and Cities

The level of SME lending doesn’t necessarily indicate the financial health of the borrowers nor the local economy. Looking at regional and sub-regional productivity in the UK, no direct correlation between the level of SMEs debt and productivity was observed. Despite that, Turnerlittle.com didn’t expect to see such a difference in the levels of business debt between the most and least in debt cities. They were also very surprised to discover that as many as 65 cities and towns out of a total 71 or 91.5% exceed the average national debt per business.

James Turner, MD of Turnerlittle.com commented:

“Even though we didn’t find any direct correlation between the level of business debt and economic productivity, abnormal deviation from the national average in either direction probably isn’t a good sign. While excessive borrowing often goes hand in hand with financial hardships, extremely low debt levels may indicate that businesses are perhaps not investing enough in innovation, research and development. Either way, it’s bad news for the economy.”

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.