Chancellor Rachel Reeves’ delivered the Spring Statement 2025 on 26th March, 2025. Rather than easing the anxieties around business confidence, it has painted a stark picture: an economy grappling with uncertainty, rising costs, and a sharp focus on fiscal discipline. While this statement aims for long-term stability, the immediate impact on businesses, particularly small enterprises, is clear. The coming months will see increased financial pressure, heightened regulatory scrutiny, and a challenging operating environment that necessitates agile adaptation or risks insolvency.

Here’s a quick breakdown of the key economic takeaways from the statement, and how they will affect the insolvency levels in the country going forward. 

• Fiscal Discipline: A strong emphasis on reducing national debt and borrowing means that adherence to “fiscal rules” remains a priority. The government is focusing on achieving a budget surplus by 2027-2028, even though the forecast for this year remains in the negative. 

  Impact: The current Increased UK government borrowing costs translate to higher interest rates for businesses. This makes it more expensive to borrow money, increasing the burden on businesses with existing debt and limiting their ability to refinance. External factors, such as potential trade tariffs and geopolitical instability, have already created market volatility. This has made it harder for businesses to plan and manage their finances, increasing the risk of unexpected financial distress.

• Economic Growth and Forecasts: The Office for Budget Responsibility (OBR) has significantly lowered its GDP growth forecast for 2025, from an initial projection of 2% down to 1%. While the growth forecast for 2029 predicts a GDP increase of 1.8%, there’s considerable skepticism around this.
  
  Impact: Slower economic growth directly correlates with reduced consumer confidence and spending. Small businesses, particularly those in the retail and hospitality sectors, rely heavily on consumer demand. A decrease in spending will lead to lower sales and revenue. The combination of reduced revenue and slower transactions is bound to create significant cash flow problems for small businesses. Those that operate on tight margins and lack the financial reserves to withstand economic uncertainty will also be at a higher risk of insolvency.
• Changes to taxation and NICs: Although income tax levels have been locked for now, the rate of employers’ NICs will increase from 13.8% to 15% from 6 April 2025. The threshold at which employers’ NICs begin to be paid will reduce from £9,100 to £5,000 per annum. 

  Impact: Reducing the threshold from £9,100 to £5,000 means that employers will begin paying NICs on a larger portion of their employees’ earnings. This is especially critical for businesses that rely on consistent cash flow to cover operating expenses. Increased labour costs will also directly reduce profitability, leaving SMEs particularly vulnerable to depleting margins. The fact that this increase comes into effect in April 2025, during a predicted economic slow down, will increase the amount of businesses that fail. Increased insolvencies are also likely to create a domino effect, impacting their suppliers and other businesses in their supply chains.

• Changes to Capital Gains Tax: The basic rate of Capital Gains Tax is now 18%, with higher and additional rates set at 24%. Business Asset Disposal Relief will change further, with a 14% CGT rate from April 2025, increasing to 18% in 2026. The lifetime cap for Investors’ Relief has been significantly reduced from £10 million to £1 million. 

  Impact: The reduction of the investors relief cap, will reduce the amount of investors that are willing to invest in small businesses. This reduction will drive more failures across the country. Companies already facing financial challenges may be forced to sell assets or undergo restructuring to mitigate the impact of the higher CGT rates.

In cases where restructuring is not possible, forced liquidations and insolvencies will shoot up sharply. This in turn may prompt business owners to accelerate planned sales or restructurings, and presents an important, time-sensitive opportunity for distressed business buyers. 

The External Threat: Trade, Borrowing, and European Relations

The global economic climate adds another layer of complexity. Trade policy shifts from the USA under a second Trump presidency pose a substantial risk to international trade. This could disrupt established supply chains and increase import costs. 

Coupled with rising UK borrowing costs, now at their highest since January (and in the last decade), the cost of capital is increasing. This creates more problems for businesses: tighter margins and more expensive debt. The UK’s trade relationship with Europe, still recovering, adds another unknown variable. This uncertainty and rising costs will inevitably lead to more businesses falling into administration.

Furthermore, HMRC’s strengthened compliance systems and the crackdown on “phoenixism” will add to the pressure. Increased scrutiny on VAT, PAYE, and Corporation Tax, means more businesses will find themselves under the microscope. This heightened vigilance will undoubtedly trigger financial distress for those operating on shaky foundations, offering a wealth of potential acquisitions for those prepared to act.   

Which Industries Will Face the Most Brunt of These Policies?

The hospitality and retail sectors face a particularly precarious future. These labour-intensive industries will bear the brunt of both rising NICs and inflating operational costs. Already contending with escalating energy costs and supply chain disruptions, these industries will likely see a higher number of administrations and liquidations in the coming months. Plus, businesses with poor digital record keeping will face increased scrutiny from HMRC, and will face fines, and legal action, increasing the chance of insolvency.

Meanwhile, the construction sector, despite government investment, is not immune to economic headwinds. Escalating material costs, fuelled by inflation and supply chain volatility can derail projects easily. Economic uncertainty and rising borrowing costs may lead to project delays or cancellations, diminishing demand for construction services. The risk is compounded by persistent skilled labour shortages, which hinder project completion and drive up labour expenses. These factors, combined with the sector’s reliance on large capital investments and long-term projects, create a volatile environment susceptible to financial distress. 

While many businesses falter under the pressure, those with the capital and strategic vision to navigate these complexities stand to reap substantial rewards. By leveraging expertise in restructuring, operational efficiency, and financial management, investors can unlock this latent potential, transforming struggling enterprises into profitable turnarounds.