Record number of businesses at risk of collapse

Record numbers of businesses are in significant financial distress, underscoring the fragile conditions underpinning the UK economy before Rachel Reeves’s budget later this month.
A report from Begbies Traynor, the insolvency practitioners, found that 632,756 companies were at substantial risk of failure in the three months to September, up by nearly a third compared with the same period last year and 5 per cent over the previous quarter.
Begbies Traynor measures several indicators including the amount of profit retained in a business, interest coverage ratios and the scale of contingent liabilities to reach its conclusions.
It is the highest figure that Begbies Traynor has recorded since its Red Flag Alert report was first published two decades ago, exceeding the number of firms in significant financial distress during the 2008 global financial crisis.
Increased frequency of corporate distress was driven by a near 20 per cent increase in the number of utility firms on the brink of closure. Moody’s, the credit agency, which has a negative outlook for the water utility sector, warned this month that firms such as Thames Water could buckle under debt pressure if they are prevented from raising customer bills substantially.
There was a 10.4 per cent increase in the number of food and drug retailers in significant distress, a 9.9 per cent rise in the financial services sector and a 8.7 per cent jump among bars and restaurants. twenty-one of the 22 sectors tracked by Begbies Traynor reported an uptick in distress over the last quarter.
However, critical stress levels, the worst rating in the report, dropped by 23 per cent to 31,201 over the last quarter from 40,613, driven by an improvement in financial conditions in the hotels and accommodation, construction and real estate sectors.
Julie Palmer, partner at Begbies Traynor, claimed that tax rises by Rachel Reeves at the budget on October 30 could tip some highly distressed firms over the edge.
“The prospect of a change of government was viewed as a potential catalyst for a much-needed economic boost, but there are significant concerns surrounding what the next budget might hold for the economy and the knock-on effect could be damaging for many businesses teetering on the edge of collapse, as it seems certain many will have to deal with higher employee-related taxes.”
Reeves is eyeing up £40 billion of fiscal changes, including capital gains tax increases and subjecting employers’ pension contributions to national insurance.
Separate data released by the Insolvency Service on Friday showed that the volume of company insolvencies edged up by 2 per cent over the past month to 1,973 from 1,943, although the quantity was down by 7 per cent compared with the same period last year.
Jo Streeten, managing director at AECOM, the consultancy, said: “Sentiment has weakened since the summer — putting greater emphasis on the outcomes of the chancellor’s budget.
“While businesses appear likely to have to shoulder an increased tax burden, there are hopes the budget will also bring with it new policies to boost investment and offer more certainty around major infrastructure projects.”
Personal insolvencies, on the other hand, leapt by 44 per cent over the past year to 10,651 in September, driven by the removal of the £90 fee to obtain a debt relief order, a formal individual insolvency process that can help people manage their debt obligations, and other policy changes.