creditcontrol.co.uk
Business climate on a knife edge
As businesses face up to realities of the Autumn 2024 Budget cost hikes and savage public spending cuts in the Chancellor’s Spring Statement, the global trade war, and now unrest in the Middle East threatening supply chains, we talk to Nick Hood, Senior Advisor, Opus Business Advisory Group about how we can expect these factors to impact on insolvency levels.
“After a sharp rise in company insolvencies in March 2025, pundits were somewhat surprised to see the insolvency figures for April 2025 plateau – there were 2,193 failures against 2,225 the month before. Now the very latest figures for May confirm that insolvencies are on the rise once more. With insolvencies coming in at 2,417 for May compared April’s 2,193, this renewed escalation in failures reinforces the cries of ‘Armageddon’ last October from the screeching Jeremiahs reacting to the Autumn Budget’s announcements of tax increases for employers, a sharp rise in the Minimum Wage and a reduction in business rates discounts for smaller companies – all of which came into effect on 1 April 2025. The predictions of commercial doom were then repeated in the wake of the initial Trump tariffs announced on Liberation Day on 2 April 2025.”
“The best way to judge the overall situation with business risk is not to look at individual monthly numbers, but instead to analyse the less volatile rolling 12-month total for insolvencies. Here the trend is far more reliable and much less exposed to the vagaries of seasonality.”
“The figure for the whole UK for May 2025 on a non-seasonally adjusted basis was 25,646. The same time a year ago, the total was 26,670 or 4% higher. But a year further back in April 2023, the total was only 24,663, or 4% lower.”
“Falling administrations – Look under the bonnet of this jalopy hiccoughing along first accelerating wildly and then braking hard, and some explanations begin to emerge. Business rescue through the Administration route is declining. It has fallen from 10% of insolvencies pre-pandemic to only 6% now, largely because of the restrictive attitude of the Courts to approving costs incurred by Administrators, as well as the changed business lending market where modern-day funders are far less willing to risk pouring money into a potential black hole.”
“Escalating creditor enforcement – By far the biggest story here is the hardening attitude of creditors, and particularly HMRC. Their ultimate enforcement mechanism is to push debtors into Compulsory Liquidation (CWU) after serving them with a Winding Up Petition (WUP). We now have statistics for both CWUs and WUPs to confirm what anecdotal comments had already suggested was going on.”
“Compulsory liquidations – Looking at the end of the enforcement process, CWUs are now running at 4,158 a year, 13% higher than a year ago and 47% up on May 2023. The latest figure is 16% of all insolvencies, compared to 14% in May 2024 and only 11% in May 2023. In the single month of May 2025, CWUs were 17% of all insolvencies.”
“Winding up petitions (WUPs) – At the beginning of the serious phase of debt collection, WUPs are rising too and even faster. The six months to March 2025 have seen a rapid growth in the number of WUPs filed against debtors in England & Wales. In Q1 2025 alone, there were 2,093 WUPs issued, a rise of 38% over both Q3 and Q4 2024.”
“There are also reports of Q1 2025 having been one of the busiest periods for the Insolvency Courts with more than 3,700 scheduled hearings. This was approximately 25% more than the same quarter in 2024. If the Q1 2025 WUP figures were to be repeated through the rest of the year, it could mean that CWUs would rise to over 8,000 or more than double the current annual run rate.”
“HMRC – Astonishingly, HMRC are issuing more than half of all WUPs, and their dominance of the enforcement scene is increasing. It appears that the inability of some Companies to pay tax bills has been the final nail in the coffin for firms in financial distress. There has been a jump from the 630 WUPs (41%) filed by HMRC in Q3 2024, compared to their 1,069 WUPs (51%) filed in Q1 2025.”
“Construction industry – Construction has been the sector with the highest rate of business failure for decades and currently accounts for 17% of company insolvencies. But now its share of WUPs has soared to 583 (28%) in Q1 2025. Of these, 230 WUPs were issued by HMRC, illustrating vividly the importance of staying on top of tax liabilities for construction businesses.”
“Hospitality and retail – A final consideration is whether the sectors worst affected by the Autumn Budget cost increases such as hospitality and retail are seeing any noticeable uplift in insolvencies. Hospitality failures have averaged 275 a month since the Autumn Budget, compared to 315 a month in the same period in 2023/24 and 300 a month in the 12 months up to the Budget.”
“For retail the picture is similar. Insolvencies have been 153 a month since the Budget, whereas they were 178 a month in the same months in 2023/24 and 170 a month in the 12 months up to the Budget. Far from rising, insolvencies in both sectors have fallen substantially.”
“The explanation may well be nothing to do with the Budget cost hikes, which only came into practical effect at the beginning of April 2025. What was happening throughout 2023 and much of 2024 was the cost-of-living crisis negatively affecting the ability and/or willingness of customers to spend, so that lower revenues were driving marginal consumer-facing businesses over the edge.”
“Just how the impact of the Autumn Budget cost increases, the global trade war and the Middle East crisis will play out for UK businesses over the next 12 to 18 months remains to be seen and can’t be predicted with any degree of certainty. UK insolvencies are back on the rise again, but the trend for the remainder of 2025 and then 2026 is a puzzle for even the most dedicated crystal ball gazers.”
“Those monitoring credit risk need to focus in particular on their debtors’ payables profile and especially their payment record on tax liabilities. For those managing challenging cash flow issues, using HMRC as an involuntary lender to smooth out blips in their liquidity has become a deeply dangerous strategy.”