UK Firms in Financial Distress Reach Highest Level Since 2004
A record 738,144 UK businesses were in "significant" financial distress in the third quarter of this year. That is 1.6% more than a year earlier and the highest figure since the "red flag" report of administrator BTG began in 2004.
The numbers come as the chancellor, John Healey, prepares to deliver his first budget on Wednesday. Pressure is growing on him to back the private sector. He has vowed to use the budget to give households and businesses more "breathing space". The backdrop is volatile: the war in the Middle East is disrupting the global economy, straining public finances and reviving the cost of living crisis.
Which sectors are struggling
Support services, construction and real estate were among the most vulnerable. They had the highest numbers of firms in significant distress, at 118,695, 108,340 and 99,908 respectively.
Hospitality has been hit hard this year. The number of bars and restaurants in distress rose 5% to 18,866. Food and drug retailers in difficulty rose by more than 7% to 19,269.
BTG is one of the UK's biggest insolvency practitioners. It changed its name from Begbies Traynor in February.
Mark Fry, BTG's chief executive, said British businesses were "battling a combination of rising employment costs, inflationary pressures, higher energy prices and elevated borrowing costs". He added that these pressures affect small firms' ability to operate and also larger firms' ability to compete globally.
Tax arrears
A freedom of information request by BTG found that businesses still owed £27.3bn to HMRC in VAT, corporation tax and PAYE at the end of August. Arrears peaked at £51.3bn during the Covid pandemic, and about £24bn has since been recovered. Before the pandemic the total stood at £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. Businesses told BTG that red tape, employment legislation, the tax burden, and high interest and energy costs would all need tackling if the budget is to be "a budget for business".
Last week the prime minister, Andy Burnham, promised to "slash red tape" for businesses. His plans include clearer compliance guidance, simpler corporate reporting requirements and longer suspensions of import tariffs on products favoured by businesses.
Source: The Guardian