Record jump in number of businesses in financial distress
Insolvency experts say there has been a record rise in the number of UK businesses in serious financial trouble.
Businesses hardest hit include hospitality, leisure and retail, but the construction industry also faces challenges.
Insolvency expert Begbies Traynor said a company could be considered to be in serious financial distress if it has outstanding county court judgments of more than £5,000 or is facing a winding-up application.
As businesses struggle, consumer confidence is also falling, with more and more people worried about the financial future of the UK and themselves.
While the number of companies in serious financial distress often surges at the end of the year, the report found a sharp 50% increase in the number of such companies between September and December last year, bringing the number to 46,583. The record jumps since Begbies Traynor started collecting such data in 2004 and is up from 31,201 three months ago.
One factor is that HMRC has become more aggressive in recovering overdue tax.
At the same time, the number of UK companies considered to be in serious financial difficulty also increased by 3.5% in the quarter, reaching 654,765.
Ric Traynor, executive chairman of Begbies Traynor, said the figures showed “it is clear that many struggling UK businesses are finding it almost impossible to cope with the challenges they face at the start of 2025”.
He added: “For many businesses already facing weak consumer confidence and rising borrowing costs, the increases in national insurance contributions and the national minimum wage announced in the last Budget may be the final straw.”
He said sectors such as retail and hospitality were particularly likely to be affected as they often had “thin margins”.
Businesses will bear the brunt of the tax increase that comes into effect in April, as national insurance rates rise and employer thresholds are lowered.
Businesses have warned that the extra costs could hit UK economic growth – a key goal of the government – with employers expecting less cash to spend on pay rises and creating new jobs.
Research released this week by Lloyds Bank, Britain’s largest bank, showed that business confidence has “weakened further” and rising business costs have led to a slowdown in economic activity this year.
Traynor said: “I fear that 2025 could end up being a watershed year, with thousands of British businesses ‘finished’ after years of struggling to survive.”
Helen Gorman has decided to close her Cardiff cafe TwentySix this month due to rising costs.
“The last two years of running a business have been really stressful,” she told the BBC.
“The industry as a whole is horrendous and there are some challenges that I don’t think any government really understands, particularly the VAT rate we pay. Costs are going up all the time, whether it’s supplier costs or energy costs.”
Julie Palmer, regional managing partner at Begbies Traynor, said there was “commercial fatigue” after years of rising costs.
“There seems to be nowhere to go, it’s getting harder and harder, the costs are increasing and cannot be passed on to consumers who are not spending money anyway,” she said.
A separate report showed consumers’ confidence in their own financial health fell slightly, while confidence in the overall economic outlook fell sharply.
GfK’s long-term survey shows that people are less willing to buy big-ticket items, while more people are considering putting money into savings.
GfK said this was bad for the economy because it suggested many people saw dark days ahead and were saving money to be safe.
Neil Bellamy, consumer insights director at GfK, said: “New Year is traditionally a time for change, but judging from these figures, consumers don’t think things are getting better.
“These figures highlight consumers’ loss of confidence in the UK’s economic prospects.”
Ms Palmer said it was difficult to see “any or many green shoots on the horizon”.
“The energy crisis subsided last year and is now starting to rear its ugly head again, probably because utilities are clamoring about how much more water bills need to rise if they are to avoid facing bankruptcy,” she added.
