50,000 firms face collapse in debt storm

MORE than 47,000 British businesses are on the brink of collapse amid a ‘debt storm’ fuelled by high interest rates.

The number of companies in ‘critical financial distress’ soared by 26pc between october and December last year, a report showed.

it was the second consecutive three-month period in which the figure grew by more than a quarter. Firms that were able to cope with their debt levels when interest rates were low have begun to struggle with rocketing borrowing costs.

The Bank of England raised interest rates 14 consecutive times from a record low of 0.1pc at the end of 2021 to a 15year high of 5.25pc by August last year.

Julie Palmer, a partner at insolvency firm Begbies Traynor – which publishes the red Flag Alert report – said ‘the era of cheap money is firmly a thing of the past’. she added: ‘Hundreds of thousands of businesses in the UK, who loaded up on affordable debt during those halcyon days, are now coming to terms with the added burden this will have on their finances.’

With a significant percentage of firms in ‘critical financial distress’ going bust within 12 months over the red Flag report’s 15-year history, Begbies Traynor warned thousands are likely to fall into insolvency in 2024.

‘sadly, for tens of thousands of British businesses who should be looking ahead to 2024 with some degree of optimism, the new year will bring a fight for survival as the debt storm that has been brewing for years looks like it is breaking across the country,’ Palmer said.

The Bank of England paused its rate raising cycle in late 2023 as inflation fell. Economists

expect the central bank to cut borrowing costs later this year. Meanwhile, the Chancellor is plotting further tax cuts in the March Budget to boost British businesses.

Writing in the Mail on sunday, Jeremy Hunt said: ‘The lesson is clear: supporting businesses with competitive taxes – not more government spending – is the way to growth.’

His headroom for tax cuts has been boosted by £10bn because of lower- thanexpected government borrowing costs.

Tax cuts this spring would add to the package he announced at last year’s Autumn statement, which was designed to boost investment in British business by £20bn a year.

Hunt’s flagship policy was making the full expensing regime permanent, allowing firms to write off 100pc of the cost of new IT equipment and machinery.