UK firms in financial distress reach 20-year peak

Insolvency practice BTG reported that 738,144 UK businesses faced severe financial difficulty in the third quarter of 2026. This figure marks the highest count since the firm began tracking these indicators in 2004. The number represents a 1.6 percent increase from the same period in 2025.

The data reveals which industries are suffering the most strain. Support services listed 118,695 companies in distress, followed by construction with 108,340 and real estate with 99,908. The hospitality sector saw the sharpest decline, with bars and restaurants in distress rising by 5 percent to 18,866. Food and drug retailers also struggled, with their numbers jumping more than 7 percent to reach 19,269.

Chancellor John Healey is scheduled to present his first budget on Wednesday. He has promised to offer households and businesses more breathing space. His announcement comes amid a volatile global environment where the Middle East war is disrupting economic stability and reigniting cost of living concerns.

Mark Fry, chief executive of BTG, identified the specific forces squeezing company margins. He noted that firms are battling rising employment costs, inflation, higher energy prices, and elevated borrowing rates. Fry stated that these pressures threaten not only the survival of small operators but also the global competitiveness of larger enterprises.

A freedom of information request submitted by BTG found that businesses owed HMRC £27.3 billion in unpaid VAT, corporation tax, and PAYE at the end of August. This debt has fallen from a pandemic peak of £51.3 billion, though it remains well above the pre-pandemic level of £11.4 billion.

Fry argued that many companies are approaching the budget from a position of weakness. He said structural hurdles, red tape, and the tax burden must be addressed to support business growth. Prime Minister Andy Burnham promised last week that his government would slash red tape by simplifying corporate reporting and extending import tariff suspensions.