Almost 50,000 firms near collapse amid strain from tax hike, report claims

Independent

28-07-2025

Nearly 50,000 UK companies are on the verge of collapse, with the retail and hospitality sectors facing the most severe impact from rising wage costs. A new report highlights that recent budget measures are placing "immense strain" on small firms across the country.
The latest red flag alert from Begbies Traynor reveals a significant 21.4 per cent year-on-year increase in businesses experiencing critical financial distress, reaching 49,309 in the second quarter. Consumer-facing industries have been particularly hard hit, with bars and restaurants seeing a 41.7 per cent surge in distress.
Travel and tourism firms recorded a 39 per cent leap, while general retailers experienced a 17.8 per cent jump. Begbies warned that many independent pubs may not possess the necessary scale to withstand these mounting pressures for another year without urgent action.
Ric Traynor, executive chairman of Begbies Traynor, said: 'The sharp rise in critical distress underscores just how tough the economic environment is for UK businesses and it's abundantly clear that tens of thousands of firms are struggling to stay afloat.
'Small and medium sized businesses across the UK are being put under immense strain by the recent increases to employer's NI as well as the increase to the national minimum wage.
'With limited financial headroom to absorb rising costs, many businesses are now reaching a tipping point.'
It is the latest sign of the toll taken on many firms by the Government's move in last autumn's budget to increase national insurance contributions (NICs) and hike the minimum wage, both taking effect in April.
Labour-intense companies in particular have felt the impact, such as retailers and restaurants and bars.
Troubles in the sector have been compounded by a pull back in consumer spending, according to Begbies.
Julie Palmer, a partner at Begbies Traynor, said: ' Households are still grappling with their finances, and this is keeping consumer confidence volatile.
'The knock-on effect of this is clear to see in the consumer-facing sectors where margins are thin, growth is hard to come by, and the impact of higher employee costs is pushing many businesses to the brink of collapse.
'So, it is of no surprise to me that while larger pub groups might be performing well, by squeezing out extra efficiencies to counteract onerous price rises, many independent players won't have the scale to withstand the pressures of this environment for another 12 months if nothing improves.'
The British Beer and Pub Association (BBPA) recently estimated that 378 pubs will close this year across England, Wales and Scotland, which it said would amount to more than 5,600 direct job losses.
The wider economy is also showing signs of strain, with recent official figures revealing gross domestic product shrank by 0.1% in May, following a 0.3% drop in April.
'With no end in sight to the current economic malaise, I fear the financial burdens companies are enduring at present are simply too high for many not to avoid collapse,' said Ms Palmer.