TENS of thousands of companies are on the brink – less than three months after the Treasury unveiled substantial increases to taxes and wages.
A shocking new report reveals a staggering 50% surge in the number of companies facing “critical” financial distress, jumping to a record 46,853 in the last quarter of 2024.
Experts at insolvency firm Begbies Traynor warn this could be just the tip of the iceberg, with thousands more businesses predicted to go bust in 2025.
All 22 sectors assessed by the business in its Red Flag alert saw an increase in critical financial distress.
In the context of business finances, “critical distress” indicates a severely negative financial situation where insolvency is highly likely in the near future.
The high street is bearing the brunt of the crisis, with consumer-facing businesses struggling to cope with the perfect storm of rising costs, weak consumer confidence, and higher borrowing costs.
Hotels and accommodation saw an 83% rise in critical distress, leisure and cultural activities jumped by 76%, and general retailers weren’t far behind with a 47% increase.
Even the usually resilient food and drug retailers saw a worrying 37% rise in distress.
Experts fear a bleak Christmas trading period has pushed many of these businesses, already operating on wafer-thin margins, to breaking point.
The pain isn’t confined to the high street.
Key sectors like construction and real estate, often seen as bellwethers for the wider economy, are also showing alarming signs of distress, with critical distress soaring by 58% and 63% respectively.
These two sectors alone now account for almost 30% of all businesses in critical distress.
London leads the UK in the number of businesses in critical financial distress with 14,326, followed by the South East with 7,499.
Just 776 firms in Northern Ireland say they’re in critical financial distress.
Julie Palmer, a partner at Begbies Traynor, the firm behind the report, warned of an “unprecedented level of growth” in the number of firms at serious risk of insolvency.
She pointed to rising operational costs, higher wages, and volatile consumer confidence as key factors driving the crisis.
The recent Budget, with its tax rises and increased minimum wage, has only added fuel to the fire, she added.
Ric Traynor, executive chairman of Begbies Traynor, echoed these concerns, warning that 2025 could be a “watershed moment” for UK businesses.
He highlighted the potential for further tax rises and increased tariffs from the new US administration as additional threats to the already fragile economy.
The report paints a grim picture across the board, with “significant” financial distress also on the rise.
“Significant distress,” while still a cause for concern, represents a less immediate threat of insolvency, suggesting a business is facing serious financial challenges but has not yet reached a critical stage.
Compared to the same period last year, significant distress has increased by a worrying 21%, impacting all 22 sectors monitored by the study.
Construction, support services, and real estate are the most heavily affected, with tens of thousands of businesses in each sector struggling to stay afloat.
What’s causing the strain?
Businesses are struggling to cope with the perfect storm of rising costs, weak consumer confidence, and higher borrowing costs.
Firms are bracing for National Insurance and minimum wage increases announced by Chancellor Rachel Reeves in October.
Employers currently pay NICs for most workers earning more than £9,100 a year.
The sum they pay is the equivalent of 13.8% of the employee’s earnings above that threshold.
For an employee earning £30,000, the employer would pay NICs of £2,884.20.
However, in the Autumn Statement, the Treasury announced it would increase the tax rate to 15% and reduce the threshold at which firms must pay to £5,000.
The British Retail Consortium has predicted that these changes will create a £2.3billion bill for the sector.
The Centre for Retail Research (CRR) has also warned that around 17,350 retail sites are expected to shut down this year.
It comes on the back of a tough 2024 when 13,000 shops closed their doors for good, already a 28% increase on the previous year.
Professor Joshua Bamfield, director of the CRR said: “The results for 2024 show that although the outcomes for store closures overall were not as poor as in either 2020 or 2022, they are still disconcerting, with worse set to come in 2025.”
More than 70 businesses, including Tesco, Asda and Sainsbury’s, told Rachel Reeves in an open letter last year that the changes announced in the Autumn Budget mean price hikes are a “certainty”.
New research by the British Chambers of Commerce shows that more than half of companies plan to raise prices by early April.
A survey of more than 4,800 firms found that 55% expect prices to increase in the next three months, up from 39% in a similar poll conducted in the latter half of 2024.
Three-quarters of companies cited the cost of employing people as their primary financial pressure.
Fashion retailer Quiz Clothing could fall into administration, just days after its shares were removed from the London Stock Exchange.
Several other prominent retailers are also facing challenges, including Poundland‘s parent company exploring strategic options with advisors, Lakeland being put up for sale, and The Original Factory Shop nearing a sale to Baaj Capital.
Last week, WHSmith revealed it is looking to sell all 500 high street stores.
The retail group has been in negotiations with several prospective buyers of the high street division for several weeks.
The Sun revealed yesterday that advisers working for WHSmith have been in discussions with Doug Putman, the Canadian entrepreneur who rescued HMV from bankruptcy in 2019.
It is hoped that a deal can be reached within three months, according to sources.
Which retailers went bust in 2024?
DURING 2024, 27 retailers of all sizes went bust, affecting 886 shops and 17,939 employees, according to the Centre for Retail Research.
The number of casualties is more than half the previous year’s rate of retail collapses, when 61 chains failed and 971 shops were impacted.
Here, we explain some of the biggest retailers that got into trouble in 2024…
Sook
Sook was one of the first retail casualties of 2024 and was particularly depressing as it was meant to be the answer to empty high street stores.
The business operated 12 pop-up shops across the country in London, Birmingham, Southampton, Liverpool, Newcastle and Leeds and made high street space available for online brands like TikTok.
Tile Choice
Tile Choice, a Midlands-based flooring retailer with 18 shops, went into administration in January 2024.
Nine stores were snapped up by rival Tile Giant but the rest were not saved.
The business had 116 staff and £16million turnover in the last financial year, but had struggled with a slowdown in spending.
LloydsPharmacy
LloydsPharmacy, once the UK’s second biggest community pharmacy chain, went into liquidation in late January with debts of £293million.
The previous year it had closed all of its pharmacies inside Sainsbury’s and divided its 1,000 pharmacy estate into packages of hundreds of stores that it then sold to rivals in smaller deals.
There are no more LloydsPharmacy-branded sites on the high street, but it continues to operate online.
The Body Shop
The Body Shop filed for shock administration in February, just four months after being taken over by restructuring firm Aurelius.
Administrators immediately closed 75 of its 198 UK stores and made cuts to its head office while its international divisions were also declared bankrupt.
It took seven months for a rescue to be sealed with British cosmetics tycoon Mike Jatania in a deal that has kept 113 shops trading.
Matches Fashion
Matches Fashion, the designer clothing online retailer, was put into administration in March, less than three months after it was bought by Mike Ashley’s Frasers Group.
Frasers Group bought the business for £52million but said it was too heavily loss-making to turn around and closed it down.
The firm was founded 30 years ago by husband and wife team Tom and Ruth Chapman, who made £400million when selling the business to private equity firm Apax in 2017.
Ted Baker
Designer clothing and accessories brand Ted Baker initially filed for administration in April after the company that ran the brand in the UK also went bust.
At the time, Ted Baker had 46 shops in the UK employing around 975 people.
The business had been taken private by US firm Authentic Brands Group in a £211million deal.
The last stores shut in August after failing to secure a full rescue. It was relaunched as an online brand in the UK and Europe after a partnership with United Legwear & Apparel Co.
Muji
Japanese brand Muji, which had six stores in the UK including five in London’s busiest shopping streets, went into administration at the end of March.
The retailer had been popular with shoppers who liked its minimalistic stationery and homewares.
It was saved after a rescue deal with its parent company.
Carpetright
Flooring retailer Carpetright filed for administration in July after efforts to turnaround the struggling firm were derailed by a cyber attack.
The business had 1,800 staff and 273 shops across the country before going bust.
Around 54 stores were snapped up by its arch-rival Tapi Carpets & Floors, which also bought its brand name and continues to run the brand online.
The Floor Room
The Floor Room was owned by the same parent company behind Carpetright, Nestware Holdings.
The business traded out of 34 John Lewis concessions and employed 201 people.
The firm also relied on Carpetright for a number of its essential customer support services and could not survive on its own.
Homebase
DIY chain Homebase collapsed in November after years of struggles.
The business had around 130 shops across the UK and had been owned by restructuring firm Hilco, which bought the business for a single £1 in 2018.
Australia’s Wesfarmers had briefly owned Homebase in a disastrous attempt to break into the UK market.
Westfarmers bought Homebase in 2016 after Sainsbury’s £1 billion purchase of Argos triggered a break-up of Home Retail Group.
The brand and some stores have been partially rescued by billionaire Chris Dawson, the owner of The Range and Wilko.
