creditcontrol.co.uk
Why economic pain is slow to trigger insolvencies
Swathes of the UK business community are predicting something close to the end of the commercial world and pleading for immediate government support, mainly blaming the Autumn Budget tax hikes that ripped into their cost base and decimated profit margins at the beginning of April.
The latest Sentiment Survey by the Federation of Small Businesses covering Q2 2025 gives a reading of -44, compared to -41 in the previous quarter. The startling highlight is that 27% of respondents expect their business to shrink, be sold or close in the next twelve months, compared to only 25% predicting growth. This is the first time since the Survey started in 2010 that pessimists have outweighed optimists. The top three reasons cited are: the stagnant economy, the Employment Rights Bill and the record tax burden.
So why aren’t business failures soaring? To find an answer to this conundrum, we asked Nick Hood, Senior Adviser at Opus Business Advisory Group to put his head above the parapet and survey the insolvency battlefield.
The raw statistics
“The latest and most meaningful non-seasonally adjusted company insolvency numbers of 2,203 failures across the whole UK for June 2025 have fallen back after the previous month’s total of 2,417, a drop of 9%. There had previously been a rising trend. June’s figure is also 11% lower than a year ago in June 2024. Nevertheless, company failures are still 38% higher than immediately pre-pandemic in February 2020.”
“Looking at the longer-term trend, the rolling twelve-month figure at June 2025 was 25,374 insolvencies, which was 5% lower than in June 2024 and 7% lower than the all-time peak in February 2024.”
More creditor enforcement, fewer business rescues
“Within the overall numbers, creditor enforcement action is rising sharply, especially by HMRC. The rolling twelve-month figure for Compulsory Liquidations now up to 18% of failures compared to only 14% a year ago. At the same time, business rescues through the Administration route continue to fall away, dropping to only 5% of insolvencies this month as against 7% a year ago. These are ominous trends for struggling businesses.”
Which sectors are worst hit?
“The most vulnerable industry has always been Construction. Its excess competition, wafer-thin profit margins and under-capitalisation generate a failure rate currently at 17% of all company insolvencies, despite only representing 5% of Britain’s GDP.”
“Hospitality comes next with 14% of overall failures. Here too, profit margins have been squeezed, this time by customer price sensitivity and soaring labour and other input costs. Then there are Retail, Manufacturing and Professional Services, each representing 8% of insolvencies.”
Why economic pain is slow to trigger insolvencies
“Media and political headlines are trumpeting doom and gloom, but while the UK economy may be sluggish it certainly isn’t in recession. For sure, the Autumn Budget has dumped more than £20bn of extra cost onto businesses to fill the alleged ‘black hole’ in the public finances. Equally, global trade turmoil driven by decisions in the White House has created an almost unprecedented level of commercial and financial uncertainty.”
“Nevertheless, history teaches that even in far tougher times than these, insolvency peaks lag some considerable way behind each successive nadir of the UK economy. Typically, over the past fifty years, this time lapse is between eighteen months and two years. In the real world, even mortally-wounded businesses take an extraordinary time to die.”
“A particular feature this time round is that business finance is so much more sophisticated than back in the days when overdrafts and term loans were the norm. Now there are far more flexible facilities in the credit market, such as asset-based finance and crowd funding. For larger companies, there is a huge pool of investment capital available from private equity houses and private credit sources. The result is greater financial resilience.”
In addition, our research reveals substantial debt reduction in most major sectors of the UK economy over the past two to three years and across all sizes of business, but particularly by smaller businesses.
“Cutting borrowings so significantly will have restricted investment, which may be contributing towards the poor productivity that characterizes the UK business scene. However, what it will have also done is reduce balance sheet pressures and the risk of the withdrawal of lender support, which is so often the catalyst for a business failure.”
Where are insolvency numbers heading?
“This is crystal ball territory in a time of such uncertainty, especially on the geopolitical front with the never-ending tariff turmoil. Sectors worst hit by the Budget cost increases such as retail, hospitality and leisure will surely see rising failures, but this alone may not substantially move the overall dial. Most likely, the current levels will prevail for the time being unless there is a major economic shock, either local or global.”
