Some Budget measures are introduced with instant effect, usually to assuage public opinion about some perceived fiscal injustice. Others have a much longer fuse, stretching years into the future. The Autumn 2024 Budget changes fell between the two, giving those businesses affected just five months to adjust to having £25bn of the alleged ‘black hole’ in government finances dumped onto their cost base.

The reaction has been a relentless campaign against the measures led by business leaders seeking either their reversal or their more gentle phasing in over a longer period.  What the government’s strategy and the understandable but seriously strident protests against it have combined to do is simultaneously to undermine both business and consumer confidence just when the languishing UK economy desperately needs a hefty dose of positivity.

Can SME businesses cope with these increased costs?

The sectors worst hit by the Budget are hospitality, leisure and retail, all employers of large numbers of lower paid and part time staff and all grossly unfairly treated by the business rates regime. The parlous situation they find themselves in is well summed up by the latest CGA RSM Tracker survey of 113 leading operators in the casual dining and drinking sub-sector. This revealed that like-for-like sales have plummeted by 1.3% in January 2025, with negative outcomes in every part of this market and in every region of the UK.

The additional costs for the hospitality sector were estimated by the trade body UKHospitality at £3bn and the severe implications for employers are set out in their post-Budget press release.

Our November 2024 hospitality report showed that more than half of hospitality companies were at significant risk of filing for insolvency or needing a major financial restructuring within three years. Within that a whopping 62% of SMEs were on the financial edge.

Our December 2024 retail report revealed slightly lower but still extremely worrying levels of financial risk both generally and particularly for SMEs.

Will the Budget trigger a major rise in business insolvency?

Industry comments in the media have warned that the Budget measures will tip large numbers of SME retailers, restaurateurs, pub operators and other labour-intensive businesses over the edge. The sheer size of the challenges ahead are well over the wrong side of daunting. Whilst there are options to consider before throwing in the towel and calling in a Liquidator, they will not be ideal to many business owners:

• Increasing prices to cover some or all of the extra costs
• Reducing staffing levels or introducing pay rate cut (subject to the National Minimum Wage)
• Scaling back trading to reduce costs (for example, pubs not opening on quiet days or at lunchtimes) and trimming overheads
• Surviving on lower profits or even tolerate losses in the short term (if this is even possible)
• Considering a merger with or a trade sale to a stronger competitor

Nevertheless, the combination of huge cost rises, the struggling UK economy, and both global and geopolitical uncertainty is likely to still be too much for the most vulnerable smaller businesses.

Have SME business failures start to increase?

Industry comments in the media immediately after and since the Budget have been full of warnings of imminent mass closures, but there is no clear sign yet that this has begun.

The latest insolvency statistics are for January 2025:

• There were 2,038 company failures across the UK
• This was just 8% higher than the preceding month and also 8% higher than in January 2024
• It was only marginally higher by 3% than pre-Budget in October 2024

Historically, January is usually a quieter month for insolvencies, reflecting the slow re-start after the festive break. For example, 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.

The process of examining the remedial options we have detailed for businesses facing challenges takes time and even then, if the conclusions are not encouraging, the skillset and mindset of entrepreneurs keeps them optimistic. Calling it a day on their business and the hard work and stress that has gone into creating it does not understandably come naturally and is most often only 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.

The increased costs from the Budget do not kick in until the beginning of April. In the reality of running a business with continual day-to-day pressures and in such difficult economic times, it’s most likely that it won’t be until the 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 complexities of the statutory process involved, getting from recognising and accepting the position of the business to crossing the insolvency finishing line will take time where the procedure used is a CVL, and 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.

Taking advice – and getting it early

However serious the situation at a business may seem, or how overwhelming the problems are for its hard-pressed owners and managers, there are often solutions which deliver a positive outcome. Getting input from experienced, independent experts can be a tough decision, but handled in a timely fashion and with the right advisers, it should be the best way forward and result in a net benefit.

Timing is of the essence. The sooner a business rescue starts, the greater the chance of there being a positive outcome. Leave it until the bailiff is at the door or suppliers have walked away and there may be no options at all, apart from reaching out for that Liquidator.

If you are considering professional advice for your business, Opus is here to provide independent assistance. You can speak to one of our Partners, who can discuss options with you. We have 14 offices nationwide and by contacting us on 020 3995 6380, you will be able to receive immediate assistance from our Partner-led team.