Number of UK businesses in financial distress ‘at two-decade high’

The number of UK businesses in financial distress has hit its highest level in more than two decades, as pressure grows on the chancellor to provide more support to the private sector in Wednesday’s budget.

There were 738,144 businesses in “significant” financial distress in the third quarter of this year, up 1.6% compared with the same period last year, according to BTG. That is the highest level since the administrator’s closely watched “red flag” report began in 2004.

The UK’s support services, construction and real estate sectors were among the most vulnerable, with the highest volume of businesses in significant distress – at 118,695, 108,340 and 99,908 respectively.

The hospitality industry was hardest hit this year, with a 5% rise in the number of bars and restaurants in distress to 18,866. Struggling food and drug retailers rose by more than 7% to 19,269, according to BTG, which is one of the UK’s biggest insolvency practitioners and changed its name from Begbies Traynor in February.

The growing strain on UK companies comes as the chancellor, John Healey, prepares to give his first budget on Wednesday, against an increasingly volatile backdrop as the war in the Middle East disrupts the global economy, putting pressure on public finances and reigniting the cost of living crisis.

The chancellor has vowed to use the budget to provide households and businesses with more “breathing space”.

Mark Fry, the chief executive of BTG, said British businesses were “battling a combination of rising employment costs, inflationary pressures, higher energy prices and elevated borrowing costs.

“Crucially, these pressures are not only affecting small businesses’ ability to operate, but also larger businesses’ ability to compete on a global stage,” he said.

A freedom of information request by BTG also found that British businesses still owed £27.3bn in arrears to HMRC in VAT, corporation tax and PAYE as of the end of August.

About £24bn has been recovered since arrears reached a peak of £51.3bn during the Covid pandemic, compared with a pre-pandemic total of £11.4bn.

“With £27.3bn owed to HMRC, high levels of recovery activity and record financial distress across the economy, many companies are approaching this budget from a position of financial weakness rather than strength,” Fry said.

“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.”

Last week the prime minister, Andy Burnham, promised that his government would “slash red tape” for businesses, with plans to make compliance guidance clearer, simplify the UK’s corporate reporting requirements and extend import tariff suspensions on products favoured by businesses.