Number of distressed businesses hits two-decade high on eve of Budget

The level of businesses facing financial distress has hit a record high, as calls grow for the Chancellor to alleviate cost pressures on the eve of his Budget statement, new research shows.

There were 738,144 UK businesses in “significant” distress in the third quarter of 2026, according to the latest quarterly “red flag alert” report by BTG.

This was 1.6% higher than the same period last year, and the highest level since the insolvency business began its research in 2004.

Of the 22 sectors that are monitored, 20 experienced an increase in levels of significant distress.

This is shown in signals coming from businesses’ accounts, legal and financial data, and means they are facing problems with deteriorating financial health.

Some of the biggest increases came from the real estate and property sector, with significant distress levels jumping by a 10th year-on-year to almost 100,000 businesses, and construction which rose by almost 5% to 108,340.

The hospitality industry also faced rising pressure ahead of the all-important Christmas period, with levels of significant distress jumping by 5% among bars and restaurants, and by 7% among food and drug retailers.

While there are more distressed businesses operating with limited financial headroom, the research showed a drop in the number of businesses on the brink of collapse in the third quarter.

There were 44,033 business in critical financial distress, which was a fall of nearly 21% compared with the same period last year.

Julie Palmer, managing partner at BTG, said: “Record levels of ‘significant’ financial distress underline just how many businesses are approaching the autumn Budget with limited financial headroom.

“While firms will naturally be looking for clarity on taxation and economic policy, many of the pressures they face extend well beyond any single Budget announcement.”

She added that her “real concern” was the consumer-facing industries like leisure and hospitality, particularly in the run-up to Christmas.

Chancellor John Healey has promised to give families and businesses “breathing space” at the Budget on Wednesday.

It comes against a backdrop of rising inflation in the UK, with energy bills set to increase further in January as the impact of the Middle East energy shock continues to feed through into the cost of living.

Mark Fry, BTG’s group chief executive, said businesses were asking whether the Budget can “support confidence and encourage investment against a backdrop of persistent inflation and elevated interest rates”.

“We hear from businesses that structural hurdles, weight of red tape, employment legislation and the tax burden alongside high interest and energy costs will need to be tackled if this is to be a Budget for business.

“It is by no means an easy task.”