738,000 UK firms report cash strain ahead of budget

British companies are facing their toughest financial stretch in two decades. Insolvency data released this week shows that 738,144 firms were in significant distress during the third quarter. That figure marks a 1.6% jump from the same period last year and the highest count recorded since the metric began in 2004.

The pressure is concentrated in specific industries. Support services accounted for the largest share of struggling firms, with 118,695 businesses in distress. Construction followed with 108,340, and real estate listed 99,908. The hospitality sector saw a 5% rise in bars and restaurants facing cash flow problems, reaching 18,866. Food and drug retailers also saw a sharp increase, with distressed firms up more than 7% to 19,269.

BTG, formerly Begbies Traynor, identified the drivers behind the strain. Mark Fry, the company’s chief executive, cited rising employment costs, inflation, higher energy prices, and elevated borrowing rates as the primary factors. He noted that these pressures affect both small operators and large enterprises competing globally.

Tax liabilities add to the burden. A freedom of information request by BTG found that businesses owed £27.3 billion to HMRC in arrears for VAT, corporation tax, and PAYE at the end of August. While this is down from a pandemic peak of £51.3 billion, it remains more than double the pre-pandemic total of £11.4 billion.

Fry warned that many firms are approaching the upcoming budget from a position of weakness. He stated that structural hurdles, red tape, employment legislation, and the tax burden require attention if the government aims to support business growth. High interest and energy costs were also flagged as critical issues.

Chancellor John Healey is set to present his first budget on Wednesday. He has pledged to provide households and businesses with more breathing space. The announcement comes amid a volatile economic backdrop, with the Middle East war disrupting global markets and reigniting cost-of-living pressures.

Prime Minister Andy Burnham recently promised to slash red tape for businesses. His plan includes clarifying compliance guidance, simplifying corporate reporting requirements, and extending import tariff suspensions on products favored by industry.