The UK economy is wallowing, almost becalmed in a very strange form of suspended animation as the business community and consumers wait for the next Autumn Budget, scheduled for the end of November. The negative impact of this curious scenario on business confidence is analysed in the latest British Chambers of Commerce (BCC) survey. The BCC research confirmed that the 4,600 respondents’ worst fears were focused on the prospects of another tax raid and on business cost inflation.
After struggling through the pandemic, surging cost inflation in 2022/23, sharply higher interest rates and the impact of the cost-of-living crisis on their customers’ disposable incomes, hospitality businesses were already wrestling with huge challenges in dealing with the cost increases imposed by the last Budget, with predictable negative outcomes for some. Media comment on the sector is dominated by stories of businesses of all types, shapes and sizes closing after fighting a losing battle with disappearing profit margins, ever-rising costs, ongoing labour shortages and increasing customer spending caution.
To see how this public perception fits with financial reality, we have analysed the latest published accounts of every pub, club and restaurant company in the UK for the sixth time in the past three years and almost a year since our last Hospitality report.
- Unfortunately, this research confirms that the sector’s finances continue to head south, with significant deterioration in all the key risk ratios in the past two years.
- The one positive development has been a major reduction in debt levels, although this has been accompanied by a noticeable shrinking in the overall size of the sector as measured by total assets and net worth.
- This either reflects losses eating away at hospitality balance sheets or a worrying reduction in the ongoing investments that hospitality businesses should be making in order to stay attractive to their customers.
We remain frustrated by the long delay allowed for filing accounts at Companies House, which means that at any point in time, accounting information in the public domain is between nine and eighteen months out of date. As such, we suspect that when we next carry out this analysis in another six months’ time, the financial profile of hospitality is likely to be more troubling.
Market characteristics
Research published in September 2025 by The House of Commons Library showed that hospitality (including accommodation) contributed £69.5bn (2.8%) of UK output in 2023. There were 173,715 hospitality businesses in March 2024, employing 2.7m people (7.3% of the workforce) in June 2025. 99.6% of hospitality businesses are SMEs, 97.7% are small companies. Our calculations confirm the sector now deploys £45bn of assets, borrows £9bn and has an overall net worth of £12bn.
Research by Alix Partners published in August 2025 shows that the number of licensed premises fell by 0.5% in the year to June 2025 – equivalent to losing two sites a day. There are now only 98,746 licensed premises across the UK. The one bright spot highlighted by the research was the continued resilient trading seen in the pub sector in H1 2025, aided by more favourable weather, as illustrated by trading updates from leading quoted operators such as Fuller’s, JD Wetherspoon, Marston’s and Mitchells & Butlers. This relatively robust performance may well prompt an uptick in expansion plans and an increase in M&A activity as seen with The Restaurant Group and Upham Inns acquiring significant parts of Oakman Group as strong operators capitalise on market opportunities.
Financial risk profile
There are currently 87,961 companies registered at Companies House, whose business is recorded as running pubs, clubs or restaurants. We analysed their finances using the data analytical system at Company Watch, the financial health monitoring specialists. A summary of our research can be found here.
Overall financial health score
Our analysis of the sector’s finances reveals that the average financial health rating (H-Score®) awarded by the Company Watch system is now only 30 out of a maximum of 100, compared to the whole economy where an average closer to 48 would be expected. Worryingly, this is down from 35 out of 100 in August 2022 and 33 in September 2023.
Vulnerable companies
Over half of all hospitality companies (54% or 47,210) are in the Company Watch warning area with an H-Score of 25 or less. Historically going back more than twenty years, such a low level of H-Score indicates that one in four of these vulnerable entities will file for insolvency or have to undergo a significant financial restructuring during the next three years. This is significantly worse than in September 2023, when only 47% (40,238) were in the warning area.
Zombie companies
More than one in five (18,405) hospitality companies had negative balance sheets (by at least a de minimis figure of £20k). This is a deterioration since September 2023, when 19% (15,739) were zombies. Their overall combined deficits continue to climb. This time, their shortfalls add up to £2.6bn compared to £2bn in September 2023.
Negative working capital
Another very worrying finding is that 25,053 (28%) of the companies have negative working capital of at least £20k. This means that their short-term liabilities due for payment in less than a year exceed their ‘quick’, easily realisable assets such as receivables, inventory and cash. This compares unfavourably with 19,893 (23%) with negative working capital in September 2023.
The overall working capital shortfall of these companies has increased to £6.7bn from £4.9bn in September 2023. A deficit position on working capital represents a vulnerable financial profile, so this is an undesirable and risky financial model at such a challenging time for the industry.
Smaller hospitality businesses
Our analysis also confirmed how fragmented the industry is and how fragile some parts of it are, with 30,514 (35%) companies having total assets of less than £25,000. With financial fragility comes much greater risk. 62% of these micro businesses are in the Company Watch warning area and their average financial health rating is only 26 out of a maximum of 100. This is a clear deterioration from the 59% in the warning area and an average H-Score of 27 in September 2023.
Business failures
According to the latest Insolvency Service statistics, there were 3,822 failures of pubs, clubs and restaurants in England & Wales in the twelve months to July 2025, equal to 15% of all failures. This is a sharp increase from as recently as 2022, when this percentage was only 11%. Only the construction sector has a higher percentage of insolvencies at 17%.
It is highly likely that this adverse trend will continue and probably worsen, given the damage to hospitality businesses caused from April 2025 onwards by the 2024 Autumn Budget cost increases for Employers’ National Insurance, the National Minimum Wage and Business Rates.
Debt issues
The overall borrowings of the industry have fallen dramatically by 48% to £8.5bn since September 2023. The average borrowings per hospitality company are £97,140 compared to £194,246 two years ago. The one slight concern is that the debt reduction for the smallest hospitality companies is lower, but it is still welcome.
Staffing issues
Recruitment and retention of staff remain major issues for many hospitality businesses, with staff shortages sometimes restricting opening hours. This produces a knock-on effect on the quality of the service experience that restaurants in particular can give their customers, which is unfortunate at a time when menu prices have increased sharply to recover at least some of the rampant cost increases of the past three years.
Office for National Statistics data shows hospitality job vacancies rose slightly to 78,000 in August 2025, marking a first rise in a year, but this was after a continuing decline for most of 2025. More significantly, the number of payrolled employees in the sector saw a significant 4.1% year-on-year drop in August 2025, falling by 109,000 jobs in total since October 2024.
What are the prospects for UK hospitality businesses?
The industry is battling on through increasingly choppy commercial and financial water with its immediate future entirely dependent on two factors beyond its control: the measures in the forthcoming November Budget and the strength or otherwise of the peak festive trading season.
Beyond these issues, which businesses will reach calmer waters and which will hit the rocks will be determined not just on how robust their finances are, but crucially also on the reaction of their customers to the extra costs they are forced to pass on through increased prices and whether they can maintain acceptable service standards and customer satisfaction levels.
Given the fragile and deteriorating financial profile revealed by our research, we must all hope that the government sees sense in protecting such a key part of the economy from the worst impacts of what will inevitably by a tough Budget and then that consumers will open their wallets to celebrate the end of another tough year.
If you would like to read our previous hospitality sector reports, click here.
If you would like to discuss any of the points in the report or believe you have been affected by any of these issues, you can speak to one of our Directors or Partners who can discuss options with you.
We have offices nationwide and by contacting us on 0203 995 6380, or emailing support@opusllp.com will be able to get immediate assistance.