Firms 'finding it almost impossible to survive' after Labour tax hikes

Less than three months following Labour's inaugural Budget, which saw an array of business tax increases introduced, there has been a 50 percent surge in the number of companies entering a state of critical financial distress. As per Begbies Traynor's latest "Red Flag Alert" report, firms registering 'critical' financial stress in Q4 of 2024 grew to 46,853.

The review spanned 22 sectors and revealed that the hotel sector experienced the most substantial rise in distress, with an 84 percent increase. General retail did not fare much better, with its distress figures climbing just over 47 percent, as reported by City AM.

Julie Palmer, a partner at Begbies Traynor, commented bleakly: "As we start a new calendar year, there is very little to be excited about."

The 'Red Flag Alert' acts as an indicator of those firms facing a significant insolvency threat within the ensuing 12 months. In addition, earlier in the week, data indicated that compulsory liquidations in 2024 reached a peak not seen since 2014, with 3,320 businesses compelled to shut down.

Construction, support services, real estate, and professional services were identified as the leading sectors in critical financial jeopardy.

Ric Traynor, Executive Chairman of Begbies Traynor, underscored the dire situation, highlighting that numerous businesses: "Are finding it almost impossible to navigate the challenges they face as we start 2025."

Palmer elucidated: "After a disappointing Christmas, consumer-facing industries, in particular, are feeling the strain."

She further commented: "Many such businesses are already operating on thin margins, and I fear the current situation will undoubtedly push some over the edge."

Traynor highlighted: "The increase in national insurance contributions and the national minimum wage, announced at the last Budget, could be the last straw".

He continued: "For many of these companies, the situation is dire, and this additional burden will almost certainly result in business leaders taking the decision to, at best, reduce headcount or, worse, wind down their operations in the face of insurmountable challenges."