Lockdown pause will hammer businesses without extra help, industry experts warnby
The coronavirus lockdown has been extended for four weeks, but the government has indicated it will not provide further support for businesses to navigate the final hurdle of restrictions, drawing sharp criticism from industry experts.
The fourth 'and final' stage of the coronavirus lockdown proved to be a mirage for businesses this week as the government extended the restrictions for a further month, but refused to commit any extra support for companies struggling to stay afloat.
A surge in cases of the Delta Covid variant, first detected in India, caused Prime Minister Boris Johnson to announce a “pause” of the re-opening, scheduled for 21 June, where almost all of the constraints on the economy would be lifted.
However, the government has indicated it will not extend the financial help on offer, despite multiple warnings that thousands of businesses are on the brink of collapse.
The UK’s aviation, retail and hospitality industries have been particularly hard hit by the lockdown, with more than £6bn in rent debt accrued and due to be repaid in two weeks by businesses that have been operating at a significantly reduced capacity - or sometimes not at all - for 15 months.
The Institute for Directors said businesses face “a cliff edge” with a number of new significant costs in the immediate pipeline.
On 23 June quarterly rent is due, while on 30 June the ban on commercial rent evictions ends. The next day, employers must start contributing 10% towards furlough costs, and one month later on 1 July the 100% business rates relief tapers off to 67%.
“Clearly this is a blow for many businesses, particularly those in the retail and hospitality sectors,” said Dr Roger Barker, the IoD’s Director of Policy. “We are now approaching a cliff edge, with government support for business ending or beginning to taper off. It is vital that this support is pushed out commensurately with the lockdown extension. Economic support and public health measures must be aligned.”
Failure to maintain emergency economic support measures in line with public health restrictions would put struggling businesses into bankruptcy and risk thousands of jobs, experts have said.
“The news that the restrictions that were going to be lifted are now extended will come as a real shock to many businesses who will have taken the government at their word,” said Rick Smith, MD of Forbes Burton. “Many hospitality businesses are simply not able to run at full capacity and may well be operating at a loss for now.”
Another month of such conditions will cause significant stress for businesses, Smith told AccountingWEB, adding that for all the talk of more confidence and signs of economic growth, many in the hardest-hit sectors will be “gritting their teeth”.
“Businesses right now that are subject to these last restrictions should prepare for more,” Smith said. “A date proposed in July will no doubt be a review, rather than a solid promise of easing, so a plan for both scenarios should be looked into.”
“Whilst schemes like furlough and the reduction in business rates have reduced businesses’ fixed cost, these schemes are tapering off, at a time when businesses may need them most,” said Dr Maggie Cooper, Lecturer in Management Accounting at Henley Business School. “This tapering means that businesses need to increase their revenue quickly to allow them to cover these.”
The delay in re-opening will be particularly hard for the hospitality sector as businesses that are open already will have been counting on being able to reduce social distancing and increase the number of customers that they can serve, Dr Cooper told AccountingWEB.
“Many businesses have spent money ordering food and drink and marketing events – incurring more variable costs that they now can’t recoup,” she added.
The hospitality industry has previously said that a four-week delay to the easing of restrictions, including the lifting of the cap on how many people can meet indoors, could cost struggling businesses £3bn and put 200,000 jobs at risk.
“Businesses need government support to tide them over what is hopefully the final hurdle – if support for the next month isn’t increased there is a chance that a significant number will fail after receiving support over the last year or so,” Dr Cooper said. “If businesses fail now due to a lack of support, unemployment, particularly in the hospitality sector, could increase significantly. High streets could also be hit hard at a time when we are already seeing an increase in the number of empty shops across the country.”
“We went long”
Despite the pleas, Chancellor Rishi Sunak has rebuffed business demands for an extension of the furlough scheme and business rates relief.
A spokesperson for the Treasury said: “The furlough scheme is in place until September – we deliberately went long with our support to provide certainty to people and businesses over the summer.”
Businesses can continue to access other support including business rates cuts, VAT cuts and our recovery loan scheme, the spokesperson said.
“It’s a tough situation for many and one which will have made many adapt and change in unprecedented ways,” said Smith. “Contingency planning and cash flow forecasting must be a priority."
The delay will be particularly difficult for the UK’s millions of small firms, the Federation of Small Businesses (FSB) National Chair Mike Cherry said.
“Many who have been unable to open are now faced with paying back their Bounce Back Loans,” he said. “Government should consider writing off spent Covid loans for the most restricted firms.”
He said it was understandable that as the pandemic evolved “the goalposts will move too”, but firms hanging on to the cliff edge may not be able to survive without additional help. 19 July has to be the final date for the restrictions to be in place, he added.
“Small firms need support now, they understand the need to take a cautious approach out of lockdown, but not at the sacrifice of businesses, jobs and livelihoods,” Cherry said. “So, the government must act to prevent further economic casualties.”