(Bloomberg) -- The number of UK businesses registered to pay VAT and employee taxes has fallen for the first time in a decade, reflecting a surge in post-Covid insolvencies and cost-of-living pressures. 

A total of 2.73 million businesses were signed up in March 2023 to pay so-called Value Added Tax or Pay As You Earn, the system used to collect income tax and National Insurance from employees, the Office for National Statistics said Wednesday. This was down 1.5% from the same time a year ago.

It was the first drop since March 2011, when the number of businesses registered slipped 0.9% from the previous year. While professional, scientific and technical businesses made up the largest group at 15.2% of all firms, their number has diminished for the last four years.

This could pose a headache for Prime Minister Rishi Sunak, who has vowed to build the UK’s future on a “knowledge economy” driven by technical and science-based businesses. As a general election approaches, the Labour opposition is now trying to build on their lead in the polls by wooing business owners and leaders that traditionally support the Tories.

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In the year to March 2023, the number of businesses fell in all regions other than Northern Ireland. The East Midlands saw the largest fall in the number of businesses, at 2.9%.

And in a worry for commercial landlords, the number of sites businesses are operating from is sliding too, by 1.4% in 2023. The industry posting the biggest drop was retail, as chains shutter stores in reaction to the rise in online shopping and a reduction in spending due to soaring inflation. 

Earlier this month, the government’s Insolvency Service announced company failures hit 2,308 in August, up 19% year-on-year.

“Trading conditions continue to be difficult,” said David Fleming, managing director and UK head of restructuring at Kroll. “Most businesses fail because they run out of working capital and many of these businesses emerged from Covid over-leveraged. They are now dealing with higher energy costs, wages, inflation and borrowing rates.”

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