Beware the Zombie Apocalypse: Thousands of struggling companies face collapse as Iran struggle and Labour’s tax hikes batter enterprise

The Iran war threatens to deal a final blow to thousands of ‘zombie’ firms already reeling from Labour’s tax hikes, according to new research.

In a doom-laden report, insolvency expert Begbies Traynor Group (BTG) warns companies that have managed to stagger on in recent years are now on the brink of collapse.

Hotels and leisure firms are in particular distress after the government’s inflation-busting hikes in the minimum wage and national insurance tax raid.

And businesses are now grappling with the fallout from the conflict in the Middle East as soaring energy prices dent confidence and push up the cost of everything from transport and packaging to food and supplies.

Julie Palmer, managing partner at BTG, said: ‘Inevitably we expect to see an increasing number of zombie businesses tipped over the edge this year.’

The comments echo a report from the Resolution Foundation think-tank before the Iran war erupted that a ‘zombie apocalypse’ of struggling firms could be on the way.

No laughing matter: Rachel Reeves’ tax hikes and the Iran war have pushed businesses to the brink of collapse

The BTG ‘red flag’ report published on Wednesday found 62,193 firms were in ‘critical financial distress’ in the first quarter of the year.

That was up 36.9 per cent on the same period of last year and follows a string of punishing tax hikes and other costs inflicted by Rachel Reeves as well as the Middle East energy shock.

The number of businesses in ‘significant’ financial distress meanwhile rose by 9.6 per cent year on year to 634,867.

Firms have faced pressure from a number of tax increases over the past year, including increases to national insurance contributions.

It also comes amid a backdrop of shaky consumer confidence, particularly affecting sectors reliant on discretionary spending habits.

‘A slew of increased taxes on businesses across the year, including increases to employer’s national insurance contribution and national minimum and living wage hikes, form part of the complex picture of challenges driving increased distress,’ BTG said.

‘Additionally, the UK’s historically high tax burden along with the uncertain economic outlook has impacted consumer confidence, particularly affecting those sectors reliant on discretionary spending, such as hospitality.

‘These challenges have been exacerbated by energy and materials inflation following the outbreak of war in the Middle East towards the end of the quarter.’

Tory business spokesman Andrew Griffith said: ‘This shows that the productive, private sector economy was already in trouble before Iran. And no surprise given the assaults by this government through taxes and red tape. 

‘We can’t go on like this. The government need to stop digging us deeper into an economic hole.’

The BTG survey found that hotels and accommodation firms ‘remain under severe pressure’ with levels of distress up 69.3 per cent while leisure and culture firms saw a 65.9 per cent increase and sports and health clubs a 51 per cent rise.

Ms Palmer said: ‘Businesses who are reliant on discretionary spending will have been hoping consumer confidence would make a comeback this year, but I fear they will be disappointed.

‘Instead, the threat of rising energy bills, inflation, interest rates and unemployment will see people tightening their belts.

‘Inevitably we expect to see an increasing number of zombie businesses tipped over the edge this year.

‘However, we are even starting to see some of the more successful businesses take a more cautious attitude than you might expect as they put cash aside to soak up higher costs and weak demand.’

Ric Traynor, executive chairman of BTG, said: ‘The shockwaves from a war in the Middle East will be felt across every corner of the global economy for some time to come.

‘After initial signs that the UK’s GDP was improving at the very start of the year, it now feels like after taking a step forward, the UK has taken a few steps backwards following one of the most severe energy shocks in living memory.’