Firms finding it ‘almost impossible’ to survive after Labour tax hikes
Less than three months after Labour’s first Budget, in which a swathe of business tax hikes were announced, the number of companies facing critical financial distress has climbed by 50 per cent.
According to the latest “Red Flag Alert” report by Begbies Traynor, the number of businesses entering ‘critical’ financial distress in the final quarter of 2024 rose to 46,853.
The report, which looked at 22 sectors, found the biggest jump in distress in the hotel sector. The number of firms in distress in this sector jumped 84 per cent. In the general retail sector, the number of firms Begbies found to be in distress was up over 47 per cent.
Julie Palmer, partner at Begbies Traynor, stated: “As we start a new calendar year, there is very little to be excited about.”
At serious risk
The ‘Red Flag Alert’ report indicates the number of firms at serious risk of insolvency in the next 12 months.
In addition to the latest report, earlier in the week, figures show that in 2024, the number of compulsory liquidations hit its highest level since 2014, as 3,320 businesses were forced to close.
Construction, support services, real estate, and professional services are the top four sectors leading the firm’s critical financial distress table.
As Ric Traynor, executive chairman of Begbies Traynor, pointed out, it is clear many businesses: “Are finding it almost impossible to navigate the challenges they face as we start 2025.”
Palmer explained: “After a disappointing Christmas, consumer-facing industries, in particular, are feeling the strain.”
She added: “Many such businesses are already operating on thin margins, and I fear the current situation will undoubtedly push some over the edge.”
Budget tax hikes could be the last straw
Traynor pointed out: “The increase in national insurance contributions and the national minimum wage, announced at the last Budget, could be the last straw”.
“For many of these companies, the situation is dire, and this additional burden will almost certainly result in business leaders taking the decision to, at best, reduce headcount or, worse, wind down their operations in the face of insurmountable challenges,” he continued.
Palmer stated: “I expect the number of insolvencies to continue to rise in 2025 as firms struggle to cope with a perfect storm of rising costs, financial instability and fluctuating market conditions.”