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Is there an insolvency tsunami ahead?

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The Chancellor’s ruthless dumping of more than £20 billion of revenue raising measures into the unwilling and unwitting laps of British business last October produced instant and entirely reasonable howls of protest, which continue to this day as their impact at the beginning of April 2025 draws near.

Predictions of financial Armageddon, especially for labour-intensive sectors such as retail, hospitality and leisure have been blood-curdling.  Business leaders have queued up to warn of mass closures, as well as huge numbers of job losses.  Yet, four months on there has been no sign of the anticipated surge of Company Directors throwing in the towel and putting their businesses into Creditors’ Voluntary Liquidation (CVL).

Keen to understand whether it is a case of “if” or “when” there will be a major rise in business failures because of the last Budget, we asked Nick Hood, Senior Adviser at the Opus Business Advisory Group to dust off his crystal ball and give us a business rescue insider’s view.

“Let’s look first at the latest insolvency statistics, which are for January 2025.  Across the whole UK, there were 2,038 company failures.  This was just 8% higher than the preceding month and 8% higher than in January 2024. It was only marginally higher than pre-Budget, just 3% more than October 2024.

“Putting this into historic context, January is usually a quieter month for insolvencies, reflecting the slow restart after the festive break.  January 2024 was lower than each of the preceding three months – by 12% vs. December 2023, 27% vs. November 2023 and 23% vs. October 2023.”

“Thinking through the reaction to the Budget cost shock for businesses, the scale of the increased burden is huge and particularly so for those that employ a preponderance of low-paid and part-time staff.  But there are many options, of which the very last is to call it day and summon a Liquidator.  Of course, none of them are easy, nor necessarily achievable.”

“Prices can be raised to compensate for the costs, staffing can be reduced or pay rates cut (subject to the National Minimum Wage), trading could be scaled back to reduce costs (for example, pubs not opening on quiet days or at lunchtimes) and overheads trimmed.  Businesses could accept lower profits or even tolerate losses in the short term, or else seek shelter in a merger with or a trade sale to a stronger competitor.”

“The process of examining these possibilities takes time and even when the conclusions are not encouraging, hope springs eternal in the minds of entrepreneurs and optimism courses through their veins.  Giving up does not come easily and is most often prompted by outside advisers or the actions of one of a business’s key stakeholders, like its bank, a key supplier or a trade insurer.”

“With increased costs from the Budget not due to impact until the beginning of April, it suggests that in the real world of running a business with all the relentless day-to-day pressures, it’s most likely that it may not be until their impact on profits can actually be seen in negative bottom lines and experienced as a cash flow crisis that many  vulnerable companies will bow to the inevitable.”

“Even then, because of the process involved, getting from admitting defeat to crossing the insolvency finishing line will take time where the procedure used is a CVL, which is the route for more than three quarters of all corporate failures.  The best guess is that any Budget-related spike in insolvency statistics may not be seen until the summer in July and August at the earliest.”

“Nevertheless, it is difficult to see how a rise in insolvencies can be avoided because of the fragile finances in the worst-affected sectors, especially for the myriad of small, family-owned businesses without the depth of resources of their larger brethren.  The detailed financial analysis in our recent reports on industries such as retail and hospitality confirm the high percentage of these enterprises vulnerable to any significant commercial shock.  By any standards, last October’s Budget is at the extreme end of such events.”