The number of companies in Scotland in “critical financial distress” is more than twice the national average, according to an alarming new report.
Second quarter figures from insolvency specialist BTG Consulting shows a 20.5% surge in firms falling into the category over the same period last year. That compares with a 9% rise across the UK.
The Red Flag Alert, compiled by the Manchester-based adviser, said the surge came against a backdrop of macroeconomic uncertainty and increased operational, employment, tax and supply chain costs.
Across the UK, all but one of the 22 sectors monitored by the report registered a year-on-year increase in ‘critical’ financial distress.
Among the worst affected were consumer-facing industries, including Leisure and Cultural Activities (+27.1% YoY), Hotels and Accommodation (+26.6% YoY), Sports and Health Clubs (+21.0% YoY) and Food and Drug Retailers (+18.4% YoY).
It found 53,756 businesses across the UK fell into the category from 49,309 a year before. In Scotland, 2,830 are now in financial difficulty, up from 2,347 in 2025.
Adding to the pressure on businesses, winding-up petitions are rising. In 2025, Ministry of Justice data recorded 6,411 winding-up petitions, a 15.7% increase on the previous year (5,543).
In addition, an FOIA request by BTG found that HMRC was owed around £27bn in corporation tax, VAT and PAYE at the end of 2025, underlining the level of overdue liabilities across UK businesses and the pressure facing indebted companies from increasing creditor enforcement activity.
Julie Palmer, managing partner at BTG, said persistent financial distress indicated that businesses were “walking a tightrope” in the second half of 2026.
She added that higher energy or inflation costs could accelerate financial distress, potentially prompting many to refinance to improve their situations. This would be particularly true for “consumer-facing industries reliant on discretionary spending.
“Against this backdrop, businesses and investors will be looking for support and clarity as soon as possible from the government.
“Business leaders will be desperate to avoid the prolonged period of uncertainty they experienced before the last autumn budget and will be hoping the new prime minister provides them with some clarity. As we have seen before, most firms can navigate choppy waters if they have time to prepare.”
AJ Bell’s head of markets, Dan Coatsworth, said: “A growing number of UK companies are at breaking point as they struggle in an uncertain world.
“The combination of lacklustre economic growth, pressures linked to higher costs of employment, energy and raw materials, and cautious spending by businesses and consumers are an accident waiting to happen.”
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