The number of British companies in significant financial distress has reached its highest level in over two decades, according to insolvency experts BTG. The firm said 738,144 businesses are now classified as being in 'significant financial distress', surpassing the previous record since BTG began its 'red flag' report in 2004. The figures emerge as Chancellor John Healey prepares his first Budget, amid mounting concerns over the health of the UK economy.
Multiple pressures are squeezing businesses simultaneously. Oil prices remain elevated at around $116 a barrel due to conflict in the Middle East, pushing fuel costs higher and raising expectations that energy bills could rise by nearly £500 to approximately £2,200 in January. The Bank of England is widely expected to raise interest rates to 4 per cent next week as it attempts to control inflation. Mark Fry, chief executive of BTG, said businesses are dealing with 'rising employment costs, inflationary pressures, higher energy prices and elevated borrowing costs'. He noted these challenges affect not only small firms but also larger companies' ability to compete globally.
The distress is spread across most of the economy. BTG found that significant financial distress increased in 20 of the 22 sectors it monitors. The hardest-hit sectors include support services, construction and property. Property companies saw significant distress levels jump by 10 per cent year-on-year to almost 100,000 businesses, while construction rose by almost 5 per cent to 108,340 firms. Hospitality faces particular pressure ahead of the Christmas trading period, with significant distress up 5 per cent among bars and restaurants and 7 per cent among food and drug retailers.
Businesses face further challenges from government policy. The Chancellor has pledged to give families and businesses 'breathing space' after £75 billion in tax increases over two years under his predecessor Rachel Reeves. However, additional tax rises are still expected, including levies on banks and gambling firms. Companies also face higher business rates bills and another inflation-busting increase in the minimum wage. Julie Palmer, managing partner at BTG, warned that many businesses are approaching the Budget 'with limited financial headroom' and that pressures extend beyond any single announcement.
Business leaders have intensified their warnings to the Chancellor. Marks and Spencer boss Stuart Machin wrote in the Daily Mail this month that previous Budgets were a 'disaster' and called on Healey to 'take the handcuffs off business'. Insolvency expert Molly Monks of Parker Walsh said that even small cost increases can determine whether struggling companies survive, and warned that business owners should not delay difficult decisions while waiting for Budget announcements.
For savers, borrowers and business owners in the UK, the combination of record business distress, higher interest rates, rising energy bills and looming tax increases means difficult financial decisions ahead and reduced credit availability as lenders tighten standards.