UK insolvencies down, but fears that budget measures could increase distress

During October 2024, the UK recorded a 10 per cent fall in corporate insolvencies compared to the previous month and a drop of nearly 25 per cent compared to the same month a year earlier.

According to the latest figures from the Insolvency Service, there were 1,747 corporate insolvencies in the UK during October 2024, compared to 1,950 in September and down 24 per cent year-on-year from 2,293 in October 2023.

October 2024’s insolvencies were comprised of 188 compulsory liquidations, 1,445 creditors’ voluntary liquidations (CVLs), 100 administrations and 12 company voluntary arrangements (CVAs). In every instance, these figures were down compared to September 2024.

The figures come after a year in which conditions have largely improved for the UK’s beleaguered businesses, with inflation and interest rates falling from historic highs and an improvement in political stability following the July General Election.

Tim Cooper, President at insolvency and restructuring trade body R3 and partner at Addleshaw Goddard LLP, said that the UK had “seen a more positive trading climate recently as interest rates and inflation have fallen and retail, hospitality and construction have seen an improvement in spending, sales or output.”

Cooper continued: “Directors of firms in these sectors will be hoping this continues after a largely challenging year, while retail and hospitality bosses will be hoping that this year’s Golden Quarter is a successful one, and retailers will hope this year’s Black Friday sales jump-start pre-Christmas consumer spending.”

However, despite the drop in insolvencies, there are fears that recently announced government measures may continue to drive high levels of financial distress among UK companies and, ultimately, potentially lead to insolvencies creeping back up.

While conditions have improved for many businesses, financial distress has continued to increase – driven by legacy debts from the COVID-19 pandemic and the ongoing impact of materials, labour and energy price inflation. According to Begbies Traynor, there were 632,756 UK businesses in “significant financial distress” in Q3 2024, up around 5 per cent from Q2 and by more than 32 per cent from Q3 2023.

The new Labour government’s autumn budget has now been forecast to further increase the pressure on businesses, with Chancellor Rachel Reeves announcing that employers’ national insurance contributions would be increased from 13.8 per cent to 15 per cent next April.

The minimum wage is also set to increase in April 2025, rising from £11.44 to £12.21 per hour for over-21s and £8.60 to £10 for 18-20 year olds. The 75 per cent discount on business rates, meanwhile, will expire in April and be replaced by a 40 per cent discount – meaning that many firms will see rates more than double.

Following the budget, the Bank of England announced a 0.25 per cent interest rate cut in November and said that Reeves’ plans would see inflation climb to a fresh peak during 2025 (albeit adding that additional spending plans would boost GDP).

The cumulative effect of rising costs combined with ongoing high interest rates (as well as the possibility of inflation increasing further in 2025) has led to widespread fears that business distress and insolvencies may rise.

Begbies Traynor Executive Chairman Ric Traynor stated: “Additional headwinds for UK business from increased employment costs and the prospect of higher for longer interest rates are likely to extend the period of elevated insolvency levels”.

R3’s Tim Cooper, meanwhile, said: “The big question for many businesses is how the change to employer National Insurance Contributions that was announced in the Budget will affect them. Although this will increase costs for all but the smallest businesses, the feedback from the market is that some directors and management teams will look to manage this by managing their staff levels or raising their prices, and firms have time to work out how they will manage the increases in costs this policy will bring before it takes effect in April so the jury is still out on how this will affect levels of corporate insolvency.”

“Directors will need to review all their costs and carefully think about how this additional expense can be absorbed. Given the potential impact this could have on their bottom lines, I would urge them to consider seeking advice from a qualified source about how they can best manage this so any potential issues can be identified and addressed as early as possible.”

Figures for the UK’s long-suffering retail sector showed that trade insolvencies were down slightly in the year to September 2024 compared to the previous year, while collapses were roughly flat from August 2024 to September 2024.

Potentially providing a microcosm for the wider UK economy, however, RSM UK Restructuring Partner Gordon Thomson said that “a wave of distress is expected following the Chancellor’s increase in employers’ National Insurance contributions and National Minimum Wage, due to the vast number of people employed in the industry.”

Thomson continued: “The current statistics may be the calm before the storm as additional costs put further pressure on retailers’ already-stretched margins, leading to an increased rate of insolvencies in Q1 2025.”

“Consumer confidence has been shaky in the lead up to the Autumn Budget, and it’s crucial this returns to avoid a disappointing Black Friday and Golden Quarter. Confidence is needed to drive a boost in consumer spending and to the overall UK economy, which saw meagre growth of 0.1 per cent in the last quarter.”

While a drop in insolvencies is clearly cause for optimism regarding UK businesses and the potential for continued recovery, the very real concerns over the impact of rising costs means that – once again – it appears to be the case that companies are not out of the woods yet.


Read more about the impact of the Autumn budget

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