UK Firms in Distress Hit 20-Year High as Healey Prepares Budget

The British economy is under mounting strain as Chancellor John Healey prepares for his first budget this week.

Insolvency firm BTG reported that 738,144 UK businesses were in significant financial distress during the third quarter of 2026. This figure marks the highest count since the data series began in 2004, representing a 1.6 percent increase from the same period last year.

The construction sector showed the greatest vulnerability, with 108,340 firms in distress, followed by support services at 118,695 and real estate at 99,908. Hospitality faced the sharpest recent rise, with bars and restaurants in distress up 5 percent to 18,866, while struggling food and drug retailers increased by more than 7 percent to 19,269.

Mark Fry, chief executive of BTG, said companies are battling rising employment costs, inflation, higher energy prices, and elevated borrowing costs. He noted that these pressures are affecting both small operators and larger firms trying to compete globally.

Tax arrears remain a heavy burden on the sector. A freedom of information request found that businesses owed HMRC £27.3 billion in VAT, corporation tax, and PAYE at the end of August. This total is down from a pandemic peak of £51.3 billion but remains more than double the pre-pandemic level of £11.4 billion.

Prime Minister Andy Burnham pledged last week to slash red tape by clarifying compliance guidance and simplifying corporate reporting. Healey has vowed to use Wednesday’s budget to provide households and businesses with more breathing space amid global economic volatility from the Middle East war.

Fry warned that many companies are approaching the budget from a position of financial weakness, citing structural hurdles and the weight of regulation as key concerns for business leaders.