Record number of UK businesses at risk of collapse ahead of critical autumn budget
A record number of UK businesses are facing severe financial pressure, underscoring the fragile state of the economy as Chancellor Rachel Reeves prepares to unveil her first budget on 30 October.
A report by Begbies Traynor, credit specialists, revealed that 632,756 companies were at high risk of failure in the three months to September—an increase of almost a third from the same period last year and a 5% increase compared to before. a quarter.
The Begbies Traynor Red Flag Alert report, which tracks key financial indicators such as profitability, interest coverage ratios, and contingent liabilities, has recorded the highest level of business stress since its inception two decades ago. This even exceeds the figures seen during the global financial crisis in 2008.
Increasing stress in all industries
One of the main factors behind the increase in corporate distress has been a sharp 20% increase in the number of companies at risk of collapse. This comes amid warnings from Moody’s, the credit rating agency, that major water companies, including Thames Water, could face mounting debt burdens unless they are allowed to increase customer credit.
Retailers, especially in the food and drug sector, also felt this, as they reported a 10.4% increase in financial difficulties. Other sectors seeing significant increases include financial services (9.9%) and bars and restaurants (8.7%). Of the 22 sectors tracked by Begbies Traynor, 21 reported an increase in stress levels in the last quarter.
However, some areas have seen a drop in levels of critical stress, the worst type of financial stress tracked in the report. Major depression among businesses fell by 23% to 31,201 in the previous quarter, down from 40,613, with improvements noted in the hotel and residential, construction, and real estate sectors.
The impact of future budget and tax increases
With Rachel Reeves expected to introduce £40 billion in financial reforms, including possible increases in capital gains tax and the use of national insurance on employers’ pensions, there are growing concerns that already struggling businesses could be pushed further into collapse.
Julie Palmer, a partner at Begbies Traynor, warned that Reeves’ budget could be a tipping point for many companies. “The prospect of a change of government has been viewed as a catalyst for much-needed economic development,” said Palmer. “But there are significant concerns about what the next budget could do to the economy, and the outcome could be disastrous for many businesses that are on the brink of collapse, as it appears that many will face higher employee-related taxes.”
Separate Insolvency Service data released on Friday showed a slight increase in corporate loans, up 2% month-on-month to 1,973 in September, although the figure was down 7% compared to the same period last year.
Mixed business ideas before the budget
Businesses are cautiously awaiting the outcome of the autumn budget, with many worried that a higher tax burden could exacerbate already fragile economic conditions. Jo Streeten, managing director at AECOM, noted that business sentiment had been weak since the summer. “Although businesses seem likely to bear an additional tax burden, there is hope that the budget will bring new policies to promote investment and provide more certainty regarding major infrastructure projects,” said Streen.
The retail and hospitality sectors, in particular, may feel the brunt of any new financial measures, as they have been among the areas most affected by inflation and labor costs over the past year.
Individual shortages are increasing
The financial crisis is not limited to businesses. Bankruptcies rose by 44 percent last year, to 10,651 in September, largely driven by changes in government policy. The removal of the £90 fee required to obtain a debt relief order, a legal insolvency procedure designed to help individuals manage unmanageable debts, has contributed to a sharp rise in the number of people in debt.
As the country prepares for the upcoming budget, all eyes are on how Reeves will balance the need for fiscal responsibility and measures to promote economic growth. With a record number of businesses in trouble and personal deficits on the rise, the power of the chancellor’s decisions has never been higher.
