When the financial history of the 2020s is written, one of the overriding themes will be the manifold cost pressures businesses have faced and the impact that has had on growth.
A global pandemic, rampant inflation, supply chain disruption, geopolitical instability, tanking consumer confidence and low productivity – all of these and more have combined to put business owners in the unenviable position of trying to manage rising costs while demand flatlines.
The inevitable result has been a sharp increase in the number of businesses in the UK experiencing financial distress and facing insolvency. In Q4 2024, the number of companies classified as experiencing ‘critical’ financial distress leapt by a record 50% quarter-on-quarter, and the figures were up again year-on-year in Q1 2025.
In the year to April 2025, one in 190 registered companies filed for insolvency. While below the peaks seen in the aftermath of the 2008-2009 banking crisis, this figure remains historically high. It also includes a continued rise in the number of compulsory liquidations, indicating a trend in stronger enforcement action by creditors.
The bad news for businesses is that there is little sign of any let-up in the pressures that are pushing them into financial distress. The new financial year has brought with it a number of new challenges for firms to contend with.
Staffing costs
Domestically, the biggest additional costs facing businesses in the year ahead relate to staffing. The much-discussed increase in the National Minimum Wage kicked in on 1st April, rising from £8.60 to £10 an hour for the 18-20 year old age bracket and from £11.44 to £12.21 for those aged 21 and above.
At the same time, employers’ National Insurance contribution (NIC) has also increased from 13.8% to 15% and the threshold at which employers start paying National Insurance on an employee’s earnings has reduced from £9,100 to £5,000.
According to the Institute of Fiscal Studies (IFS), the combined impact of these changes is that the cost of employing an adult aged 21 or over on the National Minimum Wage has increased by 7.1% compared to last year. Because of the drop in the employer NIC threshold, the cost of hiring a part-time worker on the minimum wage has increased even more sharply.
These changes are expected to disproportionately impact sectors known to rely on lower paid, younger staff, such as retail and hospitality – incidentally, two of the sectors that have faced the most severe cost pressures over the previous five years.
Tariffs
Internationally, the darkest clouds on the economic horizon are undoubtedly those gathering west over the Atlantic. US President Donald Trump’s trade tariffs have had something of a start-stop existence since he formally unveiled them on April 2, with the actual tariff rates levied on any particular sector or country seemingly changing week by week.
But that hasn’t prevented them having a damaging effect. UK exports to the US fell by a record £2.0bn in April alone, a significant factor in the UK economy shrinking by 0.3%.
This is all despite the UK running a trade deficit with the US, meaning we import more than we export. That means that British export goods should be on the lowest tariff rate of 10%, due to the duties being calculated according to the size of the US’s own trade deficit with any given country.
However, because supply chains often pass through Europe, British goods could still attract higher tariff rates. The automotive and machinery industries are expected to experience a decline in demand from the US, while the steel and aluminium sectors could end up facing 25% tariffs.
While US-side tariffs will impact demand more than direct costs, the threat of retaliatory tariffs will make importing goods from the US more expensive. And the impact on already fragile supply chains is likely to add yet another cost pressure.
Given these circumstances, it’s no surprise that more and more businesses are experiencing financial distress. The important thing is to be vigilant, and respond to any indication that business expenses might be becoming unmanageable, or that you don’t have the cash flow to deal with immediate liabilities. If that’s the case, act.
Talking to Xeinadin’s Corporate Recovery team is a vital first step in addressing any difficulties you might be experiencing. We have the expertise to help you tackle issues early, and get you back on the right path to success.
