Many UK Businesses Have Closed Their Doors for Good In late 2019, the Coronavirus swept through the UK causing disruption and chaos for businesses both large and small. The virus is the worst healthcare crisis in a generation the UK and Europe has not experienced a pandemic like this since the Spanish Flu in 1918 that killed around 50 million people and infected 40% of the world’s population. Originating in December 2019 in Eastern China in a city called Wuhan, the Coronavirus, or COVID-19, spread across the globe quicker than imagined. Worldwide, there have now been confirmed 5,822,571 cases with 358,126 deaths, and the disease has been found in more than 200 countries. What is Coronavirus? Coronaviruses are a family of viruses, most commonly found in animals. Seven of these viruses, including the recently discovered COVID-19, have been able to jump from animals to humans. In most cases, the coronaviruses cause mild cold-like symptoms, but as we know, they can also have much more severe effects. The Coronaviruses have caused similar outbreaks in the past, although on a much smaller scale. In 2012, Middle Eastern Respiratory Syndrome (MERS) first emerged causing nearly 900 deaths with a total of 2,500 cases so far. During 2002-2003 there was also a worldwide outbreak of Severe Acute Respiratory Syndrome (SARS) which infected nearly 8000 people and causing 800 fatalities. The current Coronavirus, COVID-19, is different from both MERS and SARS because symptoms can be so varied that many carriers may not know they have it. Chinese scientists have also suggested that COVID-19 has split into two strains, believing that one strain is considerably more aggressive than the other. The pandemic poses serious implications for people’s health, businesses and the economy. To protect national health services from being overrun with patients, many European countries imposed some form of restrictions to prevent the virus from spreading rapidly amongst citizens.
Lockdown in the United Kingdom
The United Kingdom followed suit and, on the 23rd March 2020, an official lockdown was declared. Prime Minister Boris Johnson announced the lockdown measures in a televised address to the nation and declared that all UK residents must stay at home to protect the NHS and prevent it from being overwhelmed. The new lockdown rules meant that people could only leave their houses for a small list of essential reasons. These reasons were:
- Shopping for basic necessities
- One form of exercise per day (either alone or with members of the same household)
- For a medical need or to provide help or care to a vulnerable person Travelling to work but only if necessary and you cannot work from home.
If people were found flouting the rules, the police had the power to enforce them, including issuing fines. In the build-up to a full lockdown being declared, many businesses had already seen a downturn in sales, especially those working in the retail and hospitality sectors. During the weeks before the lockdown was announced many large events were cancelled such as concerts, St. Patrick’s Day parades and sporting events.
Support for UK Businesses The Coronavirus Retention Scheme In anticipation of the devasting effect that the lockdown would have on UK businesses, Rishi Sunak the Chancellor, announced a support package to see them through the crisis. The support package covered a range of measures starting with aiding businesses to retain and pay their employees. The Coronavirus Job Retention Scheme allowed a business to furlough its workers instead of making them redundant, a move designed to limit a rise in unemployment. Under the new scheme, employers can claim 80% of an employee’s wage up to £2500 per month, plus any employer National Insurance and pension contributions. The scheme has been highly successful and as of 24th May 2020, approximately 8.4 million jobs were furloughed. However, everything comes at a cost and Downing Street estimates that the cost of its Coronavirus Job Retention scheme is up to £8bn. The scheme is currently being used by 800,000 employers across the country. Originally only in place until the end of May, the furloughing scheme has been extended until October, but the Chancellor has warned that this is not sustainable for much longer. Sunak is currently looking at ways of gradually winding down the scheme amid predictions that in total it will cost the Treasury £39bn before its end. To aid the transition of getting businesses off the scheme and getting employees back into full-time work, on 12th May Sunak made an announcement. He stated that from August there will be greater flexibility and workers will be able to return to work on a part-time basis with employers being asked to cover a percentage of their employee’s salaries. Talking about the extension of the scheme and his plans to bring it to a close, Rishi Sunak said: “Our Coronavirus Job Retention Scheme has protected millions of jobs and businesses across the UK during the outbreak, and I’ve been clear that I want to avoid a cliff edge and get people back to work in a measured way. This extension and the changes we are making to the scheme will give flexibility to businesses while protecting the livelihoods of the British people and our future economic prospects.” UK businesses are still awaiting further detail on the winding down of the Coronavirus Job Retention Scheme. The Coronavirus Statutory Sick Pay Rebate Scheme Another element of the support package to help British businesses through the impacts of COVID-19 was the promise that the government would pay back any statutory sick pay. The Coronavirus Statutory Sick Pay Scheme allows employers to claim back sick pay paid to current or former employees. This covers situations where the need for sick pay was due to the Coronavirus and only if the business had less than 250 employees on 28th February 2020 across all of its PAYE payroll schemes. The repayment covers up to two weeks of Statutory Sick Pay starting from the day of sickness and covers an employee if they are unable to work under certain conditions. This includes having Coronavirus symptoms, if they cannot work as they are self-isolating because someone they live with has symptoms or they are shielding and have a letter from a GP or the NHS telling them to stay at home for at least 12 weeks. The scheme also covers all types of employees including full-time, part-time, employees on agency contracts, employees on flexible or zero-hour contracts and fixed-term contracts. Business Rates Relief A further measure to help affected businesses was the business rates holiday for retail, hospitality and leisure businesses. This means that qualifying businesses do not have to pay business rates for the 2020 to 2021 tax year, covering businesses including:
- Bars and pubs,
- Cinemas or live music venues
- Assembly or leisure properties
- Hospitality properties such as hotels, guest houses or self-catering accommodation.
The Coronavirus Small Business Grant Fund In an unprecedented move to help small businesses, the government also introduced its Small Business Grant Fund (SBGF). This fund is designed to help small and rural businesses in England with their business costs during the pandemic, with those affected able to claim up to £10,000. At the time of announcing this package, it was estimated that 700,000 small businesses would benefit from the SBGF. Managed by local authorities, the scheme provides a one-off grant for businesses that have received small business rate relief (SBRR) or rural rate relief (RRR) on the 11th March 2020. Small businesses that have a rateable value between £12,000 and £15,000 and receive tapered relief also qualify for the fund. To help those businesses that did not qualify for the Small Business Grant Fund, Rishi Sunak also announced that a package of £330bn of loan guarantees would be made available. There was also an additional £25,000 cash grant for businesses with a rateable value of less than £51,000.
Support for Small and Medium-Sized Businesses The loan guarantees promised by the government were bought into effect under the Coronavirus Business Interruption Loan Scheme (CBILS), a lending scheme available for SMEs through over 40 accredited lenders in the UK. To qualify for the scheme, a business:
- Must be UK-based in its activities
- Must have an annual turnover of no more than £45 million
- Must have a borrowing proposal that would be considered viable were it not for the current pandemic
- Must self-certify that it has been affected by the coronavirus and not have been classed as a business in difficulty on 31st December 2019 if applying to borrow £30,000 or more.
HM Treasury reported on 24th May that there have been 43,045 approved Coronavirus Business Interruption Loan Scheme applications with a value of £8.15bn, along with 154 approved applications for the large business interruption loan scheme holding a value of £0.82bn. The Bounce Back Loan Scheme (BBLS) was also introduced to help small and medium-sized businesses to access finance more quickly during the coronavirus outbreak. As part of this scheme, businesses can borrow between £2000 and up to 25% of their turnover with a maximum of £50,000, to combat the effects of coronavirus. The government will back 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After the initial 12 months, the interest rate will be 2.5% per year. As of 24th May, HM Treasury reported that there have been 608,069 applications for the Bounce Back Loan Scheme with a total value of £18.49bn. Support for the Self-Employed Although late to the table, the government also included a scheme designed to support self-employed workers, of which there were more than five million by the fourth quarter (October to December) of 2019. The Self-Employment Income Support Scheme is available to the self-employed or members of a partnership, that have been adversely affected by the coronavirus pandemic. The scheme allows eligible applicants to claim a taxable grant of 80% of their average monthly trading profits which is paid out in a single instalment to cover 3 months. However, it is capped at £7,500 altogether. To qualify for the grant, the following terms need to apply:
- You traded in the tax year 2018 to 2019 and submitted your Self-Assessment tax return on or before 23rd April 2020 for that year.
- You traded in the tax year 2019 to 2020.
- You intend to continue to trade in the tax year 2020 to 2021.
- You carry on a trade which has been adversely affected by Coronavirus.
The latest figures from HM Treasury show that currently there has been 2 million Self-employment Income Support (SEISS) claims submitted worth £6.1 billion.
The Re-Opening of UK Businesses
Throughout the UK lockdown, Boris Johnson and the government has reiterated the importance of unlocking the economy and getting businesses back to work. Recently, there have been reports that Britain is on the verge of a recession worse than that experienced in 2008, as stock markets reported their largest falls since the 2008 crash. Since mid-February, the FTSE 100 has fallen by 20 per cent. The Chancellor, Rishi Sunak, warned of the possible downturn after figures from the Office for National Statistics (ONS) showed that after just nine days of the restrictions on businesses, output had fallen by 5.8% in March and by 2% in the first three months of the year. The Government, keen to avoid an economic downturn, has revised its lockdown measures in recent weeks encouraging businesses to reopen as soon as it is safe to do so. During the Coronavirus Daily Briefing on 25th May, Prime Minister Boris Johnson set out a timeline for this reopening across the UK. The first businesses will be allowed to open from 1st June, provided they are ‘COVID-19 secure’. These businesses are outdoor markets and car dealerships, chosen because they are largely based outdoors. Therefore, the risk of transmission of the virus is significantly lower, and there is more space to apply the correct distancing measures. Following this first phase of reopening, all other non-essential businesses such as shops selling clothes, shoes, toys, furniture, and electronics will also be allowed to reopen from 15th June. Again, these stores must comply with the COVID-19 secure guidelines.
The COVID-19 Secure Guidelines To help employers, employees and the self-employed get back to work safely the Department for Business, Energy & Industrial Strategy has published 8 guides to cover different types of business and help them become COVID-19 secure. The guides include five main steps, with additional specific actions for businesses to take based on these steps.
- Carrying out a COVID-19 risk assessment is the first step to ensuring the safety of the workplace. The assessment should be carried out in line with HSE guidance, and workers should be consulted. Once completed, the results of the risk assessment should be shared with workers and on your company website.
- Developing cleaning, handwashing and hygiene processes. As a business, you should increase the frequency of hygiene processes by encouraging people to follow the guidance on handwashing as well as providing hand sanitiser around the workplace. You should also frequently clean and disinfect objects and surfaces that are touched regularly, set clear use and cleaning guidance for toilets, and provide hand drying facilities such as paper towels or electrical dryers.
- You should help people work from home by taking reasonable steps such as discussing home working arrangements, ensuring employees have the right equipment to work from home, including them in all necessary communications and looking after their physical and mental wellbeing.
- Maintain the recommended 2-metre social distancing where possible and put up signs to remind workers and visitors of this guidance. Employees should also refrain from sharing workstations, move in a one-way traffic system through the workplace if possible, and switch to seeing visitors by appointment only if possible.
- Where people cannot remain two metres apart, every effort should be taken to manage the transmission risk. This includes considering whether an activity needs to continue for the business to operate and if it does, then limiting the time involved to keep it as short as possible. Using screens or barriers to separate people from each other and using back to back, or side-to-side working whenever possible. You should also stagger arrival and departure times for members of staff and reduce the number of people they have contact with by using fixed teams or partnering.
Some Businesses Must Remain Closed While a lot of businesses can reopen with the new guidelines, some must remain closed until the 4th July at the earliest. Restaurants and pubs, wine bars, or other food and drink establishments (including those within hotels and member’s clubs) must remain closed to the public but can remain operational to provide food delivery and takeaway. Businesses working with the beauty industry must also remain closed until further notice from the government including hairdressers and barbers, beauty and nail salons, and piercing and tattoo parlours. Businesses offering accommodation are also to remain closed including hotels, hostels, B&B’s, holiday rentals and campsites. Along with these, other non-residential institutions such as libraries, community centres, and places of worship must also remain closed. The Business Casualties of Coronavirus As some businesses prepare to open their doors in June or wait patiently for the go-ahead from the Government, some may never operate again. Despite the help offered by the government at the start of the crisis, it is believed that almost a fifth of the UK’s small businesses could go bust as a result of the coronavirus pandemic. Between 10th March and 9th April 2020, there was a 50 per cent surge in insolvencies which increased to 3,736 compared to 2,495 last year. Many experts attribute the jump in insolvency appointments to the fact that a large part of the government’s support package focused on loans. These loans still depend upon the approval of the bank and will only be approved if the bank can see that it will make a profit for itself and its shareholders. Many businesses have also been reluctant to borrow, fearing that they will be unable to keep up with the repayments when the time comes. Some firms have claimed that banks have only offered high-interest rate loans or that they have been turned down completely. Cashflow is cited as the major reason for the folding of many businesses and a report from the British Chambers of Commerce in April highlighted the fact that many firms only have up to three months’ cash in reserve, whilst one in five firms have enough for one month or less. Even with the Coronavirus Job Retention Scheme where employers can furlough employees and receive 80% of their wages, there have still been substantial business closures and job losses. Work and Pensions Secretary, Therese Coffey, reported that there had been more than 1.8 million claims for universal credit since 16th March. There have also been more than 250,000 claims for jobseeker’s allowance and over 20,000 claims for Employment Support Allowance since the UK restrictions were put into place. The transport sector suffered the biggest hit as almost three times as many businesses folded during March alone. This was followed by Real Estate, Wholesale and Communication services. Newer companies were also adversely affected and nearly half of all the companies dissolved were less than three years old. Statistics from the beginning of the March also illustrate how more companies have ceased trading than have started up. In the three weeks of March leading up to the 22nd, there were 40,531 company incorporations. However, in the following 23 days, this dropped to 27,194.
Is There A Light at the End of The Tunnel? Discussions surrounding the recovery of the UK economy following coronavirus are still ongoing, with economists making varying predictions. The Bank of England has produced a report detailing its expectations for the economy, predicting that GDP will drop by 25% during the current quarter and unemployment will rise to 9%. The BoE’s model shows that the economy will shrink by 14% during the current year, with a recovery of 15% in 2021. If the Bank of England’s predictions are correct, it shows that the UK economy still faces a tough six months before it can begin to recover. If the UK’s lockdown is to continue for a further month it will cause even bigger problems than originally expected. The Office for Budget Responsibility (OBR) believes that in this scenario GDP would fall by 35 per cent, the biggest slump since The Great Depression in 1921. Not all industries are being affected equally with some harder hit than others, especially those that cannot operate at all. Should the lockdown continue for three months, the OBR estimates that the education sector would suffer the worst collapse with a predicted 90% fall in output. This is closely followed by accommodation and food services with a fall of 85%. Although some construction work has been able to continue, where it is in the interest of public safety and workers can remain two metres apart, there have been many sites that have had to remain closed. This has resulted in the construction sector becoming the third largest casualty with a predicted fall of 70% if a three-month lockdown occurs. Due to the tough conditions, not all businesses will be able to operate in the same way as before, or they may never recover and reopen. Reflecting this harsh truth, a prediction of a rise in unemployment of 1.5 million, resulting in a total of three million this year, is expected. There could also be a further 800,000 people claiming unemployment in early 2021 before the job market starts to recover. By the end of the pandemic, even if the economy recovers as predicted it will mean that the UK has missed out on up to two years of growth with investment, education and training all put on hold. While there are no fully accurate projections on the true cost of Coronavirus on the UK’s businesses, one thing we do know is the longer it continues, the bleaker the outlook. It is a crisis that will have far-reaching repercussions into the future.