A “generation” of companies could be wiped out without further support from the government, business leaders have warned MPs, as billions of pounds in debt has been racked up through the pandemic with little hope of repayment.
Industry chiefs from the travel and aviation, hospitality and retail sectors gave evidence to the influential Treasury Select Committee scrutiny panel on Monday, where they told lawmakers there will be a “long Covid for the economy” without further help.
More than £6bn in commercial rent arrears has built up during the pandemic, which may lead to the closure of thousands of businesses if not addressed.
Aviation sector grounded
Mark Tanzer, chief executive of travel industry body ABTA, said government support had been “inadequate” from the very start of the pandemic, with many firms now suffering “absolute hardship and desperation”.
“The situation for travel is bleak,” Tanzer said. “The support measures that have been available have been appreciated, but at the margins and not adequate for the scale of the challenge the travel industry has faced and is facing. The summer season counts for two-thirds of annual business; we’re in it now, and nobody is travelling.”
Tanzer said the recent decision to pull Portugal from the green list of countries UK residents can visit with minimal testing and quarantine requirements was a bitter blow for the sector, indicating the aviation sector was not amongst the government’s priorities.
The two most popular countries remaining on the green list, Iceland and Gibraltar, account for less than half of 1% of travel, he said.
“The government needs to recognise travel is in a class of its own in terms of the pain it has suffered, and if we do not have support through these crucial weeks I fear losing a generation of travel companies,” Tanzer said.
HMRC’s data reveals that take up of furlough was only 49% of travel companies, which Tanzer said is because staff had to be at work to deal with re-bookings and refunds for holidays that can no longer go ahead due to government restrictions and requirements.
The figure is much lower than for other sectors, such as hospitality, which had a furlough take up rate of 70%
Almost half of the UK’s aviation sector has said it will cut jobs when the furlough scheme tapers off, while the industry has lost 37% of its workforce already. That number is set to rise if the summer season is further delayed, Tanzer said.
“We have lost some very well established and notable companies, within ABTA we’ve lost 25-30 members,” Tanzer said. “I have anecdotal evidence of people who have been living on thin air, they are right at the end of the tether, they are not crying wolf. They are down to their last redundancy, their last member of staff, the loan is due, they’re being chased by lenders, threats of bankruptcy, this is the here and now story of what it is like for travel.”
Tackle rent debt to save high street
Kate Nicholls, chief executive of UKHospitality, and Helen Dickinson, chief executive of the British Retail Consortium (BRC), told the panel that the government should extend the current moratorium, which ends on June 30. The measures were introduced last year to protect commercial tenants from eviction for non-payment of rent.
Landlords can begin to reclaim rent arrears accrued during the pandemic from 1 July, but with a stuttering reopening following three lockdowns, a wave of businesses may go under for good.
“There is going to be a shadow - a long Covid for the economy if we are not careful,” said Nicholls. “We have £2.5bn of rent debt that falls due in one hit on 1 July when the moratoriums end. We desperately need an extension. And we need the government to work with us, lenders, and landlords, to get a solution to have this rescheduled over a longer period of time. Otherwise it will create unnecessary insolvencies just as we are exiting the crisis, which is what we fear will happen.”
About one in five hospitality businesses will close if the rent debt problem is not addressed, Nicholls said.
Britain’s banks, responsible for handing out the government-backed support, have also proved difficult to deal with, Nicholls said, by refusing to extend the loans taken out during the first lockdown.
“Very few members have been able to get their loans extended to 10 years,” she said. “There are still commercial restrictions being applied by banks, and the high level of uncertainty around the trading environment means banks, lenders, landlords are risk averse, they are being cautious. We are not breaking even, so can’t pay the debt, and it will lengthen the time of the recovery.”
The UK’s unemployment rate rose to 5% in the three months to November 2020, according to ONS figures, with more than 200,000 people having lost their jobs in the three-month period.
The hospitality sector has been the worst hit of any British industry through the coronavirus crisis, with the number of unemployed up by more than 50,000 year-on-year, according to the Office for National Statistics (ONS).
More than 1.72m people are out of work, with 828,000 fewer people on company payrolls, marking the highest level of unemployment in the UK since 2016.
Retail sector hammered
“On top of that £2.5bn in hospitality there is another £3.5bn of retail-related rent debt,” said Dickinson. One suggestion floated by the trade body is to ring-fence the historic debt that relates to periods of closure, rather than a blanket extension of the moratorium.
“This is a great example of where two-three weeks out from the deadline we still don’t know what is going to happen,” said Dickinson. “It’s fair to say the measures put in place at the start of the crisis were not designed to support such a prolonged and sustained hit on revenue.”
Dickinson said that the pandemic has pushed many retail firms to trade online, warning that the future of many stores could hinge on changes to the moratorium and business rates. Dickinson told the committee that footfall into retail locations is still down 30% on where it was pre-pandemic.
“We’ve seen a closer relationship between physical and digital, but we’ve lost around 5,000 shops over 2020,” she said. “Whether we lose more than we need to will depend on the moratorium decision, giving space to businesses which need to negotiate with landlords, and the business rates review.”