A Begbies Traynor report is warning that tens of thousands of “zombie” firms are at risk of collapsing this year due to increased pressures from Rachel Reeves Budget which has raised taxes, wage bills, increased inflation causing weak consumer demand.
Begbies Traynor quarterly red flag alert report has reported that in the three months of 2025, there has been a 44% year-n-year increase of firms being in “critical” financial distress.
The report stated that for many years “zombie” firms have struggled and could collapse this year.
Zombie firms are typically highly leveraged and are unprofitable and generates enough revenue to stay in business and pay debt, but does not make enough money to invest in growth.
Hotels are seeing a 54% increase of having financial problems, along with a 39% rise for restaurants and bars the last year.
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Julie Palmer, partner at Begbies Traynor, said, “During the crucial final quarter of 2025, the UK economy continued to experience subdued levels of consumer confidence.
“This has had a painful impact on the hospitality, retail and housing sectors, which have been under considerable pressure for some time.”
Palmer added that small businesses are “starting the new year with some very difficult choices ahead, as the weight of slower spending and increased running costs bring them to near breaking point.”
She said, “We see a new catalyst in 2026 that could push some over the edge, as HM Revenue & Customs starts to call in some of the £27 billion in overdue corporation tax, PAYE and VAT following the pandemic.
“Over the years, there have been many tipping points for zombie companies, but the heightened level of critical distress combined with weak consumer spending, compounding cost inflation and action from HM Revenue and Customs, could mark another milestone.”
