July 5, 2020

Volume X, Number 187

July 03, 2020

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The Statistics Paint A Bleak Future For UK Businesses

As the world remains in lockdown, the Coronavirus pandemic continues to affect almost every business, impacting profits, customer interaction and ultimately threatening the survival of many businesses.

New studies have begun to show the impact of the national lockdown on the UK’s business community. The Opinium-Cebr Business Distress Tracker (the “Tracker”), created by the Centre for Economics and Business Research (“Cebr”), surveys 500 business across the country, representing a broad range of industries and business sizes. As firms grapple with the unprecedented challenges brought about by the coronavirus crisis, these results shed some light on what the future may look like.

Business Insolvency Risk

The Tracker has found that more than half a million (591,000) UK businesses have been pushed to the brink as a result of the coronavirus crisis, with 1 in 10 saying that there is a high risk they will enter insolvency.

Just 2 in 5 (41%) of businesses feel that they are safe from insolvency as a result of the coronavirus-related disruption. Meanwhile, the remaining 51% say that there is a high (10%), moderate (15%) or small (26%) risk that they will enter insolvency as a result of the crisis. This equates to 2.9 million businesses across the country.

The statistics from the survey uncover a bigger problem. More than a quarter of a million businesses confirmed that they will be unable to survive if trading conditions continue for another month, while more than 1.1 million firms could collapse if lockdown continues for more than three months.

The economic carnage that a second wave of infections would bring would crush those businesses who have just about survived the first wave. During the first month of the national lockdown, businesses profits were down by an average of 29% and, among those businesses with 1-9 employees, profits were down by 35%. There is no doubt that any substantial extension of the lockdown, will have a catastrophic impact on the business community.

Employment Impact

In order to survive the current economic crisis and save jobs, many businesses have adjusted their daily practice and have taken advantage of government support schemes, such as the Coronavirus Job Retention Scheme. On average, businesses have placed 35% of their employees on furlough. This average is slightly higher (45%) for smaller businesses with 10-49 employees. Today’s news of the extension of the JRS to October will be very welcome across the economy and form an integral part of future plans for businesses.

In addition to furloughing, many other decisions have been made to reduce the financial burden on businesses and more importantly, reduce the likelihood of having to make redundancies. For example, on average 32% of employees have seen a reduction in their working hours and a similar proportion (33%) have experienced wage cuts.

The British Chambers of Commerce Coronavirus Business Impact Tracker (“CCBI Tracker”) found that number of firms accessing the government’s Job Retention Scheme remains consistent with previous weeks, with around 74% of respondents furloughing a portion of their staff. Current reports shows that 59% of those who have submitted a JRS claim have received payment from HMRC and no firms have reported being rejected yet.

Economic Recovery

In last Sunday night’s speech, Boris Johnson attempted to set out the UK’s “road map” for ending the coronavirus lockdown. In an effort to get the UK economy get back on its feet, Johnson laid out his three stage plan, with the first stage being that employees who cannot work from home should be “actively encouraged” to go back to work. As highlighted in our previous blogs, the manufacturing and construction sectors have been one of the worst affected by the lockdown and have the second highest number of employees on furlough. This initial easing of the lockdown hugely benefits these sectors as it allows their employees to return to sites.

A concerningly high level of businesses feel that they will not be able to bounce back to full activity after lockdown. On average, businesses say they will need 6 months to return production to pre-crisis levels. The CBBI Tracker found that smaller businesses may be faster in restarting operations. Almost two-thirds (64%) of respondents employing fewer than 10 people said they would need less than one weeks’ notice to restart, compared to half (50%) of respondents with more than 50 employees.

This initial recovery however, is overshadowed by the widespread, long-term and severe level of disruption for businesses. In light of the Tracker’s results, Cebr forecasts that the UK GDP will remain below its 2019 level until 2022. James Endersby, Chief Executive at Opinium said “The damage inflicted on UK businesses by the pandemic and lockdown is colossal, and the figures make for very sombre reading. The business impact is felt in almost every region, every sector, across every business size and at almost every level of employment. It’s unavoidable.”

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 133

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About this Author

Devinder Singh, Squire Patton Boggs, Contentious Insolvency Lawyer, UK Attorney
Partner

Devinder leads the Restructuring & Insolvency Group based in our Birmingham office. Devinder's clients include the major clearing banks, asset based lenders, insolvency practitioners, corporates and creditors.

He advises on all aspects of corporate restructuring and insolvency, with a particular specialism in contentious work.

Squire Patton Boggs Restructuring and Insolvency Team is ranked in Tier 1 in the 2014 editions of Chambers UK and Legal 500 where Devinder is described as “commercial” and “a team...

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