Top 5 insolvency & restructuring predictions: Big government is here to stay

2020 was a watershed in many ways. One change was the massive increase in government spending to pull the economy through the pandemic. The furlough scheme, targeted support at restaurants and many other business sectors, support for public transport providers, business finance schemes and the costs of pandemic health care all added to a vast increase in public budgets.

This was a dramatic break with recent decades when the benefits of small government (including the supposed freeing of the private sector and lower taxes) prevailed.

Other western governments made similar huge increases in spending. And the approach has not been restricted to the pandemic. Western governments (lead by the US) are now focussed on boosting the green economy, boosting native businesses, and chasing specific objectives.

The likely change to a labour government this year makes that approach likely to continue. Traditionally, labour has been more open to bigger government than the conservatives.

What does that mean for the restructuring sector?

Look out for targeted incentives: It will affect the green economy, but other business sectors may also have financial incentives open to them which could help turn a business around.
High taxes are here to stay: With anaemic economic growth, it seems hard to see how there will be a quick reduction in taxation (barring a few election giveaways). Taxation will then be likely to remain a big overhead for businesses and consumers.
And HMRC will remain crucial to restructuring: With HMRC’s restored preferential status in insolvencies (reintroduced at the end of 2020), and high tax burdens continuing, there will be an outsized voice for HMRC in restructurings.
Government approval for deals: The long list of sectors in which deal approval is needed under the National Security and Investments Act (brought in in 2021) is likely to be just a start. Government ministers seem increasingly willing to speak out on business decisions - particularly those which have been state owned but now privatised services (such as the railways) but also stretching to other sectors (see for instance Grant Shapps’ recent comments on the choice of shipyard for a replacement ferry in the Scilly Isles). There are limited relaxations of the NSIA regime for administration appointments and sales but these fall well short of covering all restructuring scenarios.

Lobbying and an eye on government activities, then seem to be on the agenda for all restructurings.