UK retail and hospitality sectors brace for insolvency spike post-Budget, industry leaders caution

Industry bosses have voiced concerns of a potential wave of insolvencies within the retail and hospitality sectors next year, as companies struggle under the weight of the tax bill following Labour’s Budget. Experts in insolvency and restructuring anticipate a rise in financial distress at the beginning of 2025, with retail, hospitality, and care sectors particularly susceptible due to escalating energy costs and substantial tax demands.

Following official statistics indicating an increase in company insolvencies at this year's close, there is evidence of a challenging economic climate. In November, company insolvencies rose by 13 per cent from the previous month, as reported by the Office for National Statistics, though they exhibited a decrease on a year-on-year basis, as reported by City AM.

Homebase, the DIY and garden retailer, was among those that entered administration in November. Retail and hospitality sectors are raising concerns about the severe repercussions of the Budget, highlighting soaring expenses and looming redundancies.

In more specific terms, there was a notable jump in UK retailers experiencing acute financial difficulties in the last quarter of the year; this coincides with "weaker-than-expected" November retail sales and lingering uncertainty concerning the Budget. Fresh figures from Insolvency firm Begbies Traynor revealed that, during the fourth quarter of 2024, the distress count for UK retailers spiked to 2,124, a significant rise from 1,696 observed in the preceding quarter.

Insolvency practitioners have reported a rise in inquiries from company directors in the lead-up to the new year. According to Nicky Fisher, immediate past president of R3, the UK's insolvency and restructuring trade body, and partner at Herron Fisher, members have seen an increase in inquiries in November as directors sought to understand their insolvency or restructuring options and discuss financial concerns ahead of January.

Fisher stated: "The December period will either be a lifeline or the tipping point for a number of businesses – especially those in the retail and hospitality sectors, who have had a challenging year of continued rising costs coupled with cautious customer spending."

With significant cost increases looming, including rises in National Insurance contributions, the minimum wage, and other tax hikes announced by Chancellor Rachel Reeves in the autumn Budget, Fisher added: "With the changes to employer National Insurance and National Minimum Wage being introduced in April, the next three months will be critical for firms in these industries and others as they work out how they will manage the impact this additional cost will have on their finances."

"This could lead to an uptick in restructuring work in the first quarter of this year or a rise in corporate insolvencies between March and June – but at this stage it’s too early to tell which of these outcomes is most likely."

Benjamin Wiles, managing director of restructuring at Kroll, commented on future prospects, stating that "still uncertainty" looms over the next year as firms confront increased costs that may be partially balanced by stronger consumer finances due to rising wages. He noted a recent surge in activity within the construction sector and hinted that this trend might extend into 2025 given the high borrowing costs.

David Kelly, a partner at PwC, outlined the hurdles for the upcoming year: "The year ahead is poised to bring fresh challenges, including navigating the implications of the Autumn Budget measures and responding to the evolving actions of clients and suppliers."

He emphasised the need for "ongoing resilience" within the corporate sector to manage these pressures.