Rate Of Liquidations And Critical Distress In Hospitality Signal Need For Precision Rather Than Blunt Policy Instruments

Liquidations in the hospitality sector between 2023 and 2025 remain higher than pre-covid levels, with more expected as the hospitality industry grapples with some of the highest levels of serious financial distress, according to analysis of Red Flag Alert data by BTG (the new name of Begbies Traynor Group).

Despite a 15.8% decrease in the number of hospitality liquidations from 2023 to 2025, the current rate is higher than pre-covid levels (2025 +45% compared to 2019), and with a double-digit increase in critically distressed businesses across Hotels & Accommodation (+53.7%, Q4 2025 – 638) and Bars & Restaurants (+39%, Q4 2025 – 2,441) there is a chance of more liquidations.

The volume of businesses in ‘significant’ distress (a less severe rating of financial distress that ‘critical’) for Hotels & Accommodation (+13.2%, Q4 2025 – 5,495) and Bars & Restaurants (+2.1%, Q4 2025 – 17,488) also increased – however, the rate of this increase has slowed annually.

Analysing the sub-sectors of Bars & Restaurants, BTG found ‘significant’ distress increased year-on-year for ‘licensed restaurants’ (+0.5%, Q4 2025 – 6,264), ‘public houses and bars’ (+1.8%, Q4 2025 – 5,649), ‘unlicensed restaurants and cafes’ (+3.8%, Q4 2025 – 5,063) and ‘licensed Clubs’ (+7.6%, Q4 2025 – 512).

Across UK sectors, ‘significant’ financial distress increased 11.3% year-on-year to 728,640 firms (Q4 2024: 654,765) but just 0.3% in the fourth quarter of 2025, while ‘critical’ distress surged annually by 43.8% to 67,369.

While bars and restaurants make up the majority of liquidations over the past years, their rate of increase has slowed faster than hotels and accommodation – bars and restaurants down 9.6% on last year, hotels and accommodation down only 0.8% on last year.

Julie Palmer, Managing Partner at BTG, said:
“Hospitality leaders have not made their feelings about business rates a secret and though there may now be a helping of cash for pubs, other parts of the industry will be left feeling hungry for support. Consumer behaviour has moved away from spending on food and drink towards saving, and many are opting for the supermarket over the pub if they are spending. This means the market is shrinking, as businesses in this sector face further rising costs from rates, minimum wage increases, energy and produce. In what is usually a difficult first quarter for the industry, there will be many who are nervously peering over a cliff edge.

“Our analysis shows that even though the rate of hospitality liquidations has slowed, the businesses in critical financial distress is not falling. The impact of the Budget’s fallout on the sector is yet to be seen in full, but the likelihood is that rising costs and a lack of spending will see the downward trend in liquidations reverse this year. The unemployment crisis more acutely impacting hospitality and retail will also put further pressure on businesses and owners, with further minimum wage hikes later in the year likely to further prevent hiring.

“A focus on survival and recovery in the long term is needed, not just fighting fires and plastering over the cracks. For businesses this means remaining agile to keep up with fast-changing consumer behaviour and maintaining a strong bottom line to keep afloat when the market produces further challenges. For Government it likely requires nuance and flexibility in policy. This means encouraging employment of young people in an industry that relies heavily on the under 25 demographic, relieves some of the cost burden of rates and energy, and improving margins for businesses across the supply chain.

“Businesses will be trying to confront distress early, identify weaknesses, drive profitability and renegotiate more sustainable terms with lenders. Though we may see shops, pubs, bars, restaurants and hotels shut up shop for good this year, it could lay foundations for others to grow and the landscape to evolve. We will see distressed businesses with potential snapped up and turned around by bigger companies and we will see survival. Under these kinds of challenging conditions, the businesses that remain will be the those that can transform and evolve.”

Property and auctions expert Andy Thomspon, Director at BTG Eddisons, said:
“For struggling hospitality businesses, particularly groups with multiple sites, the key to survival and maximising value to recover could be through the sale of disused or struggling sites. This is common practice for developers and housing associations, and while it is always a shame to see a much-loved business disappear, sale and repurposing often helps breathe new life into a community and helps other businesses thrive.

“Our city centres, high streets and suburbs are ever evolving, and there is a balance that needs to be achieved. Demand for housing relies on a variety of amenities being nearby and those businesses can only thrive if new housing brings in more people. Every area across the UK is different, and demands and necessities may vary, but there must be a balance between homes and businesses.

“Neither communities nor businesses benefit from derelict buildings, and the value they can offer needs to be unlocked by putting them back into use. We are seeing more companies and public sector organisations opting for auctions to do this quicker, and we expect to see this trend continue as value is sought from surplus property.”