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National living wageBusiness performanceLatest NewsJob creation and lossesMinimum wage

Employer tax hikes fuel jump in ‘distressed’ firms

by Jo Faragher 24 Jan 2025
by Jo Faragher 24 Jan 2025 The number of companies who could face closure jumped by a record amount in the final quarter of 2024
Shutterstock
The number of companies who could face closure jumped by a record amount in the final quarter of 2024
Shutterstock

Concerns around an increase in employer taxes have contributed to a record jump in the number of UK businesses in financial distress.

Insolvency experts Begbies Traynor found there was a 50% increase in companies in “critical financial distress” (meaning they have an outstanding county court judgment of more than £5,000 or face a winding up petition) between September and December 2024.

The number of companies in this category increased to 46,583, a record since Begbies Traynor started collecting data in 2004. In the previous three months, the number was 31,201.

Budget impact

Retailers warn chancellor of £7bn budget burden 

National living wage increase of 6.7% confirmed 

The firm said that a more aggressive stance by HMRC in terms of recovering overdue taxes had played a part in the sharp rise, as did fears that business costs such as higher wages, the prospect of increased employer national insurance contributions, and the impact of the Employment Rights Bill were making operating conditions difficult for businesses.

The worst hit sectors were hospitality, leisure, retail and construction, it found.

“For many businesses which were already dealing with weak consumer confidence and higher borrowing costs, the increase in National Insurance contributions and the national minimum wage, announced at the last Budget, could be the last straw,” said Ric Traynor, executive chairman.

“It is clear that many distressed UK businesses are finding it almost impossible to navigate the challenges they face as we start 2025.”

Julie Palmer, a partner at the firm, said the growth in businesses facing insolvency was “unprecedented”.

“With many such businesses already operating on thin margins, I fear the current situation will undoubtedly push some over the edge.

“Indeed, at a time when consumer confidence is so volatile and borrowing costs look likely to be structurally higher for the foreseeable future, the situation feels very precarious.”

Palmer said tax rises and the increased national minimum wage, announced in last October’s budget, would put further strain on businesses that “are struggling to tread water already”.

“So, in the absence of a reduced tax burden and a strong economic recovery, I expect the number of insolvencies to continue to rise in 2025 as firms struggle to cope with a perfect storm of rising costs, financial instability and fluctuating market conditions,” she added.

There have been multiple warnings from business bodies and major employers that chancellor Rachel Reeves’ decision to increase employers’ national insurance burden to 15%, as well as lower the threshold at which it is paid, could mean job losses or stifle recruitment.

BT, for example, said it will face additional costs of around £100 million because of NI and minimum wage changes.

Earlier this month, analysis by the Centre for Policy Studies showed that the cost of employing low-wage staff will hit a record high in 2025.

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Jo Faragher

Jo Faragher has been an employment and business journalist for 20 years. She regularly contributes to Personnel Today and writes features for a number of national business and membership magazines. Jo is also the author of 'Good Work, Great Technology', published in 2022 by Clink Street Publishing, charting the relationship between effective workplace technology and productive and happy employees. She won the Willis Towers Watson HR journalist of the year award in 2015 and has been highly commended twice.

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