UK Business Distress Reaches Highest Level in More Than Two Decades

The number of UK businesses in significant financial distress has climbed to its highest level in over twenty years, according to new figures published as the chancellor faces calls for greater support for the private sector in this week's budget.

Insolvency practitioner BTG counted 738,144 businesses in significant distress in the third quarter of this year, an increase of 1.6% on the same period last year. It is the highest figure since the firm's closely watched "red flag" report was first compiled in 2004. BTG changed its name from Begbies Traynor in February and is one of the country's biggest insolvency practitioners.

Support services, construction and real estate were among the sectors under the most pressure. They recorded the largest numbers of businesses in significant distress, at 118,695, 108,340 and 99,908 respectively.

Hospitality was the hardest hit this year. The number of bars and restaurants in distress rose by 5% to 18,866, while struggling food and drug retailers increased by more than 7% to 19,269, BTG said.

The findings arrive as chancellor John Healey prepares to deliver his first budget on Wednesday. The backdrop is increasingly volatile, with the war in the Middle East disrupting the global economy, straining public finances and reviving the cost of living crisis. Healey has promised to use the budget to give households and businesses more "breathing space".

BTG chief executive Mark Fry said British firms were "battling a combination of rising employment costs, inflationary pressures, higher energy prices and elevated borrowing costs." He added that these pressures were hurting not only small businesses' ability to operate, but also larger companies' ability to compete globally.

A freedom of information request by BTG also showed that businesses still owed £27.3bn to HMRC in VAT, corporation tax and PAYE arrears at the end of August. Arrears peaked at £51.3bn during the Covid pandemic, and about £24bn has since been recovered. The pre-pandemic total was £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. He said businesses had told BTG that structural hurdles, red tape, employment legislation and the tax burden, alongside high interest and energy costs, would need to be tackled for this to be a budget for business.

Last week, prime minister Andy Burnham promised his government would "slash red tape" for businesses. The plans include clearer compliance guidance, simpler corporate reporting requirements and an extension of import tariff suspensions on products favoured by businesses.