The number of UK businesses in 'critical financial distress' has surged by over a third in the past year, as companies grapple with increased taxes and the fallout from the Middle East conflict. According to restructuring firm BTG, 62,193 firms are now in trouble, a 36.9% rise compared to the same period in 2025.
Hospitality and Leisure Hardest Hit
All 22 sectors monitored by BTG saw an increase in financially troubled firms, but hospitality and leisure businesses fared particularly poorly due to shaky consumer confidence, rising taxes, and higher staff costs. Hotels and accommodation firms experienced a 69.3% rise in critical distress, followed by leisure and culture (65.9%) and sports and health clubs (51%).
Blame on Tax Rises and Energy Costs
BTG, formerly Begbies Traynor, attributed the spike to Chancellor Rachel Reeves' tax increases, including higher employer national insurance contributions and the national minimum wage. Executive Chair Ric Traynor noted that combined with rising energy costs from the Iran war, many firms are now in a precarious position. 'We remain hostage to macroeconomic shocks beyond our control,' he said.
Julie Palmer, managing partner at BTG, warned that conditions could worsen as inflation rises following the Middle East war and the closure of the Strait of Hormuz. 'Businesses reliant on discretionary spending hoped for a consumer confidence comeback, but rising bills and unemployment will tighten belts,' she said. However, she noted that some firms might benefit if Britons opt for UK holidays due to jet fuel shortages.
Zombie Businesses at Risk
BTG's Red Flag Alert report, which has tracked corporate distress since 2004, expects more 'zombie' businesses—those barely covering debt interest—to fail this year. Traynor added that the war's shockwaves will affect the global economy for some time.
A Treasury spokesperson defended the budget decisions, stating they stabilize the economy and support families and businesses, including cutting living costs. They highlighted that the minimum wage boost benefits over 200,000 young workers, and employer NICs are lower for under-21s.
