creditcontrol.co.uk
Low growth means static business failures
There were howls of protest from labour-intensive industries after the 2024 Autumn Budget plugged what was then claimed to be a £20 billion ‘black hole’ in the public finances by dumping huge cost increases onto the business community.
The understandable and very public complaints from the likes of hospitality, retail and leisure suggested that the end was nigh for huge numbers of businesses already weakened by the pandemic, rampant cost inflation, high interest rates and the cost-of-living crisis. Historically, these sectors account for around a quarter of all business failures.
So, the current plateau in company insolvencies is a puzzle to most pundits, who have been expecting a surge for many months. The latest figures for September 2025 showed that 2,044 UK companies had filed for insolvency, compared to 2,034 the month before. Individual monthly figures can vary, but looking at the 12-month rolling total is a more reliable guide. The total of insolvencies for the year to September was 25,565, more or less the same as the equivalent number every month since last autumn.
This figure was 7% below the all-time high of 27,182 in February 2024 but that peak was largely down to the aftermath of the gross disruption caused by Covid, as the sheer battle fatigue after the pandemic and the ending of creditor enforcement restrictions finally killed off mortally wounded businesses.
The question is, why with all these potential trigger points and a virtually moribund economy hasn’t there been a significant rise in business failures? We asked Nick Hood, Senior Adviser at Opus Business Advisory Group what factors might be at play.
A lack of growth opportunities has reduced overtrading
“Insolvency practitioners will confirm that apart from poor management, the other most common feature of many business failures is ill-considered, badly controlled or underfunded expansion. As well as the generally sluggish economy over the post-pandemic years, there’s another inhibitor to growth, especially for smaller businesses who make up almost all business insolvencies.”
“Our research shows that all major sectors have been paying down significant amounts of debt over the past two to three years, especially SMEs repaying their Bounce Back Loans. It’s been difficult for companies to focus on growth when cash flow is being dedicated to debt reduction.”
More funding options
“Another issue promoting business survival has been the increased availability of a broader range of alternative finance options. Non-traditional lenders, such as crowdfunding platforms for smaller companies and private equity for larger businesses have stepped in to fill gaps left by more risk-averse high street banks. In addition, there has been a shift away from overdraft borrowing to asset-based lending, which can be far better attuned to the ebbs and flows of trading. This has enabled companies with solid fundamentals to access working capital, refinance debt and invest in necessary changes to their operations.”
Restoration of reliable management information post-Covid
“Accessing funding and retaining the support of existing funders is all about providing lenders with credible management information to demonstrate the ability of a business to service and repay facilities. The pandemic caused havoc with this process, leaving disrupted businesses without meaningful financial and trading data. Time has restored the pre-Covid status quo, leading to improvements in the availability of funding.”
Labour market dynamics
“The UK’s persistently tight labour market has also played a role. With unemployment at low levels until the most recent increases, businesses have been able to retain and reallocate staff more effectively. The flexibility of the UK workforce, including the rise of temporary and gig working and especially zero-hour contracts, has allowed companies to adjust staffing costs rapidly in response to fluctuating demand, reducing the risk that labour costs will drive some marginal businesses into insolvency. All of this is potentially under threat now from the proposals in the Employment Rights Bill.”
Where next for insolvency levels?
“This really is crystal ball territory. There is no obvious reason why business failures should drop significantly, but the next Autumn Budget has the capacity to push them higher. Raising significant amounts of extra revenue to plug the hole in the public finances may squeeze disposable household incomes to the point where consumer-facing sectors are pushed over a financial cliff. Equally, harsh cuts to government spending will affect other sectors badly. Doing both simultaneously risks a major upward tick to insolvencies.”