53,756 British companies are now in “critical financial distress”

A new Red Flag report by BTG has found that the number of British firms in critical financial distress has risen 9% to 53,756, as businesses continue to be squeezed by higher operating costs, rising taxes, and elevated borrowing costs.

Hospitality remains one of the worst-hit industries, with a total of 510 hotels and accommodations experiencing a marked deterioration in profits – a 26.6% jump from 403 a year ago – far outpacing the UK average.

While critical financial distress isn’t a guarantee of going bust, BTG also recorded a 15.7% rise in winding-up petitions in 2025, adding to concerns that insolvencies are climbing higher across the country.

However, as pressure mounts, there are steps businesses can take to manage costs and improve their financial resilience.

More UK businesses are being pushed to the brink

British financial advisory firm BTG has just released its quarterly Red Flag report, and the findings paint a bleak picture of the health of UK businesses. 

All but one of the 22 sectors investigated recorded a rise in companies under critical distress – a metric BTG uses to describe businesses facing severe liquidity shortages, creditor enforcement, or formal legal action, including winding-up petitions. 

The leisure and culture sector was the worst affected, with a total of 1,478 businesses being classed as critically distressed – up 27.1% year-on-year. Hotel and accommodation businesses trailed in close second, serving as a reminder that customer-facing industries are particularly vulnerable to recent cutbacks in discretionary spending. 

 The Red Flag report also points to mounting overdue tax liabilities, with HMRC currently being owed around £27 billion in corporation tax, PAYE, and VAT at the end of 2025 – a stark indication of the cash-flow pressure facing indebted businesses. 

Against this backdrop, BTG executive chairman Ric Traynor warned that there appears to be “no relief in sight” for distressed businesses. 

He explains: “Whilst the extent of the impact is still unknown, the escalation in winding-up petitions is an ominous sign”, adding that when confidence and spending remain subdued, the resulting shockwaves will likely be felt across many other industries later this year and into 2027.

What support can businesses expect from Andy Burnham’s new government?

As the number of businesses in financial dire straits grows, BTG is calling for greater clarity from the government, especially with rising energy prices expected to push inflation higher this Autumn. 

Ric Traynor suggests that instead of another sweeping rescue package, certainty would prevent business owners from being caught out by further cost increases, or would at least give them more time to plan for what lies ahead. 

While new Prime Minister Andy Burnham did recently introduce a 20% business-rates cut for pubs, social clubs, and qualifying live-music venues from April 2027, the measure is relatively narrow and does little to support the wider leisure and cultural sector, while hotels and other forms of accommodation were left out completely.  

There is, however, some movement on hotels. On the 24th of August, the Treasury launched an independent review of how pubs and hotels are valued for business rates. The review is intended to address unfairness in the sector, with pubs and hotels currently being taxed on how much money they make, rather than their floor space, like retailers. 

Despite these small steps, the main question for struggling businesses is whether measures will be enough to make a substantial difference to their finances, and whether they provide enough certainty to keep costs predictable.