Budget blow to Healey as number of UK firms in 'significant distress' hits two-decade high

Updated: 07:15 EDT, 27 October 2026 The number of British companies in 'significant' distress has hit a record high as business braces for another bruising Labour Budget.In a report that fuelled fears over the health of the UK economy, insolvency experts BTG said there are now 738,144 firms in ‘significant financial distress’.That is the highest number since the group started its ‘red flag’ report more than two decades ago in 2004 when Tony Blair and Gordon Brown were on Downing Street.The figures make grim reading ahead of John Healey’s first Budget as Chancellor tomorrow and come as the oil price remains painfully high at around $116 a barrel due to war in the Middle East.That has pushed up fuel prices and sparked warnings that energy bills could rise by nearly £500 to around £2,200 in January.Borrowing costs are also on the rise with the Bank of England widely expected to hike interest rates to 4 per cent next week in a desperate bid to keep a lid on inflation. Chancellor John Healey prepares for the Budget 2026 in his kitchen in the No 10 flatWith the economy creaking, the Chancellor has promised to give families and businesses ‘breathing space’ following £75billion of tax hikes in just two years under his predecessor Rachel Reeves.But more tax hikes are still expected – including on banks and gambling firms – while firms grappling with a barrage of red tape are also set to be hit with a higher business rates bill and another inflation-busting hike in the minimum wage.Mark Fry, chief executive of BTG, said ‘businesses are already battling a combination of rising employment costs, inflationary pressures, higher energy prices and elevated borrowing costs’.He added: ‘Crucially, these pressures are not only affecting small businesses’ ability to operate, but also larger businesses’ ability to compete on a global stage.’The red flag report found that ‘significant financial distress’ increased in 20 of the 22 sectors monitored with the highest levels recorded in support services, construction and property.Some of the biggest increases came in property, with significant distress levels jumping by a 10th year-on-year to almost 100,000 businesses, and construction which rose by almost 5 per cent to 108,340.The hospitality industry also faced rising pressure ahead of the all-important Christmas period – the so-called ‘golden quarter’ – with levels of significant distress jumping by 5 per cent among bars and restaurants, and by 7 per cent among food and drug retailers.Julie Palmer, managing partner at BTG, said: ‘Record levels of significant financial distress underline just how many businesses are approaching the Autumn Budget with limited financial headroom.‘While firms will naturally be looking for clarity on taxation and economic policy, many of the pressures they face extend well beyond any single Budget announcement.‘My real concern is for consumer-facing sectors such as leisure and hospitality, particularly as we enter the run up to the vital Christmas trading period. Higher employment costs, rising inflation and interest rates will add real-world pressure to many domestic budgets.‘Add into that a forecast 26 per cent rise in the January 2027 energy price cap and households are likely to concentrate on the essentials.’Healey has faced a barrage of warnings from business leaders over the impact of Labour's tax hikes and rising costs on jobs and investment in recent weeks.Writing in the Daily Mail this month, Marks & Spencer boss Stuart Machin branded the last two Budgets under Reeves a 'disaster' and urged Healey to ‘take the handcuffs off business’.Insolvency expert Molly Monks, of corporate restructuring group Parker Walsh, said: ‘When so many businesses are already under pressure, even relatively small changes to operating costs can make a difference to whether a company remains viable.‘The Budget will matter, but business owners cannot afford to put off difficult decisions while they wait to see what the Chancellor announces.‘The biggest mistake is often waiting until there is no money left to act. If you are struggling to pay suppliers, falling behind on tax liabilities or relying on incoming payments to cover overdue bills, those are warning signs that need attention now.’DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you