End of Covid support leaves one in seven businesses in trouble

More than one in seven UK businesses are at great risk of imminent closure once Covid support schemes end in April, according to research by the London School of Economics (LSE) which predicts a major wave of bankruptcies unless the government takes action

The analysis, based on survey data from the Office for National Statistics (ONS), was conducted by the LSE’s Centre for Economic Performance (CEP) and the Alliance for Full Employment (AFFE), and suggests that unless remedial action is agreed, businesses are on the cliff edge and for many collapse is inevitable.

It found almost 15% of UK business are facing closure, with micro businesses – those with fewer than 10 employees – particularly vulnerable.

The ‘at-risk’ group comprises 390,000 registered businesses or 906,000 of all businesses.

Registered businesses now in the at-risk group employ 1.9m people – 8% of private sector employment. When all at-risk businesses are taken into account 2.5m – 9% of jobs - are shown to be at stake.

Without further government support measures, the CEP authors warn, business closures could be well over three times higher by the end of the first quarter of 2021 than the first quarter of 2019.

The report outlines a range of measures to head off the predicted collapse, including loan subsidies stretching well into 2021; a systematic debt restructuring in the recovery period including exchanging government loans for government equity stakes; and new collaboration between government and banks with the latter supporting administration of government lending.

The researchers also advocate the expansion of public-private Seed Equity Investment Schemes, arguing this will encourage the development of new high growth businesses, rather than just helping existing companies.

Former Chancellor Gordon Brown, in an introduction to the report, said: ‘Governments cannot afford to be behind the curve, especially in a crisis. They have to be at least two steps ahead.

‘But today the fate of thousands of small businesses hangs in the balance; millions face an uncertain future after April when the furlough is to end; youth unemployment is already at record levels - all concerns that a forward-looking government should be dealing with today.

‘And yet, for all its welcome focus on help through loans and the financing of the furlough, the government has said little and done little that offers struggling businesses the prospect of long-term survival.

‘If we are to save good small businesses that are innovative and forward looking but which, without help with their investment plans, are in danger of going under, the Budget must bring forward measures. It is time to offer new hope to what will otherwise be dying firms.’

Report: A major wave of UK business closures by April 2021? The scale of the problem and what can be done

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