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A record number of British businesses are facing significant financial difficulties, underscoring the precarious state of the economy as Chancellor Rachel Reeves prepares to unveil her first budget on October 30.
A report from insolvency specialist Begbies Traynor found that 632,756 businesses were at significant risk of failure in the three months leading up to September – an increase of almost a third on the same period last year and a 5% increase compared with the previous period. quarter.
The Begbies Traynor Red Flag Alert report, which tracks key financial indicators such as profit retention, interest coverage ratios and contingent liabilities, has recorded the highest level of business distress since its inception two decades ago. This even exceeds the figures during the 2008 global financial crisis.
Increasing need in all sectors
One of the main reasons for the increase in business problems is the sharp increase of 20% in the number of utilities at risk of collapse. This comes amid warnings from credit rating agency Moody’s that major water companies, including Thames Water, could collapse under growing debt burdens unless they are allowed to substantially increase their customers’ bills.
Retailers, especially in the food and drug sectors, have also felt the pressure, reporting a 10.4% increase in financial distress. Other sectors showing sharp increases include financial services (9.9%) and bars and restaurants (8.7%). Of the 22 sectors tracked by Begbies Traynor, 21 reported a rise in distress levels over the last quarter.
However, some areas have seen a reduction in critical stress levels, the most serious form of financial distress described in the report. Critical need among businesses fell 23% to 31,201 from 40,613 last quarter, with improvements noted in the hotels and accommodation, construction and real estate sectors.
Impact of upcoming budget and tax increases
With Rachel Reeves expected to introduce £40 billion of tax changes, including potential increases in capital gains tax and the application of National Insurance to employers’ pension contributions, concerns are growing that already struggling companies could be pushed further towards collapse pushed.
Julie Palmer, partner at Begbies Traynor, warned that Reeves’ budget could be the tipping point for many businesses. “The prospect of a change in government was seen as a potential catalyst for a much-needed economic boost,” Palmer said. “But there are major concerns about what the next Budget has in store for the economy, and the knock-on effect could be damaging for many businesses teetering on the brink of collapse, as it seems certain that many will face higher personnel-related problems. taxes.”
Separate Insolvency Service data released on Friday showed a slight increase in business failures, up 2% month-on-month to 1,973 in September, although this figure fell 7% compared to the same time last year .
Mixed business sentiment over budget
Businesses are cautiously awaiting the outcome of the autumn budget, with many concerned that a higher tax burden could worsen already fragile economic conditions. Jo Streeten, managing director at AECOM, noted that business confidence had weakened since the summer. “While businesses will likely have to bear a higher tax burden, there is hope that the budget will also bring new policies to boost investment and provide greater certainty around major infrastructure projects,” Streeten said.
The retail and hospitality sectors in particular are likely to bear the brunt of any new fiscal measures, as they were among the hardest hit by rising inflation and labor costs over the past year.
The number of personal bankruptcies is also increasing
The financial pressure is not limited to companies. The number of personal bankruptcies has risen 44% in the past year, reaching 10,651 in September, largely due to changes in government policy. The abolition of the £90 fee required to obtain a debt relief order, a formal insolvency process designed to help individuals manage unmanageable debts, has contributed to the sharp rise in personal insolvencies.
As the country prepares for the upcoming budget, all eyes are on how Reeves will balance the need for fiscal responsibility with measures to stimulate economic growth. With record numbers of businesses in distress and personal bankruptcies on the rise, the stakes for the Chancellor’s decisions have never been higher.