Almost a third of smaller businesses on brink of closure as economic crisis caused by Covid set to deepen

The economic crisis caused by coronavirus is set to deepen with warnings that almost a third of smaller enterprises are on the brink of closure and businesses are due to have racked up borrowing totalling more than £60bn by the end of this year.
Rishi Sunak

Photo: Dominic Lipinski/PA WireRishi Sunak

Photo: Dominic Lipinski/PA Wire
Rishi Sunak Photo: Dominic Lipinski/PA Wire

The economic crisis caused by coronavirus is set to deepen with warnings that almost a third of smaller enterprises are on the brink of closure and businesses are due to have racked up borrowing totalling more than £60bn by the end of this year.

Grave concerns have been voiced over the perilous financial situation which the nation is facing as vast swathes of the economy continue to be locked down by the Government in an attempt to bring Covid-19 infection rates under control.

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A report published today (Mon Feb 8) has revealed almost a third of smaller businesses will be forced to close by the end of the year if the national lockdown is extended.

And a separate study has said that the UK’s businesses borrowed £35.5bn in net terms last year, with a further £26bn forecast by the end of 2021.

But consumers stuck in a cycle of lockdowns and restrictions cut back on spending, with the amount of credit card debt falling at the fastest levels in 26 years, according to the financial forecast report by the EY ITEM Club.

The UK financial services managing partner at EY, Anna Anthony, said: “By the end of this year, businesses will have borrowed in the region of £60 billion net since the start of the pandemic, which is a colossal amount, especially as for many it is just about survival, not expansion or growth.

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“And the prospect of some, if not many firms, not being able make the required repayments is concerning for all involved.”

The stark warning comes ahead of the first anniversary of Rishi Sunak’s term as Chancellor on Saturday.

The MP for Richmond in North Yorkshire assumed the hugely influential political role less than six weeks before the nation was plunged into the first lockdown.

The survey of more than 750 small to medium sized enterprises (SMEs) found that 30 per cent said they will close for good if the lockdown continues until the end of March, and a further one in four believed they will continue to operate but make no profit.

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Nucleus Commercial Finance said its study showed that the longer the lockdown lasts, the more businesses will have to shut.

About one in 12 respondents said they would have to make redundancies if the lockdown continued, while a similar number warned they would be forced to close sites.

Nucleus Commercial Finance’s chief executive, Chirag Shah, said: "Despite the government support measures in place, businesses can’t continue operating under such uncertainty and with limited notice about changes to restrictions. Businesses need a clear road map out of the pandemic, so owners can plan and have clear visibility of the support available to them."

Further research published today has revealed that losses at the top 100 UK restaurants doubled to £571m in the year to the start of the lockdown last March.

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The accountancy group, UHY Hacker Young, said the losses are expected to worsen again in the coming months as restaurants have been forced to repeatedly shut their doors, leaving many struggling to survive.

Restaurants have become more reliant on home delivery services, but this can be a double-edged sword because of commissions of up to 35 per cent plus VAT, said the report.

Manufacturing firms are preparing for a “long-haul recovery” from the crisis after a survey of almost 200 companies in the sector by Make UK found almost a third believe it will take a year or longer for normal trading to return.

The manufacturing organisation said its study showed that while the Government should use next month’s Budget as a starting point, Ministers should develop a longer-term strategic vision on how the UK can prosper.

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The Government has pledged it is committed to rebuilding the economy in the wake of coronavirus. The Office for Budget Responsibility, which monitors government spending, has estimated borrowing will be £394bn for the current financial year - the highest figure ever seen outside of wartime.

- Amazon and other internet retail giants could be hit with an online sales tax in a move designed to claw back money which the UK owes after heavy borrowing during the coronavirus pandemic.

Treasury sources confirmed Chancellor Rishi Sunak is considering targeting companies that have done well out of the pandemic to pay back government debts incurred while supporting industries through the crisis.

The move is being considered as part of a review into business rates in the UK following a consultation last year.

Amazon sales red by 51 per cent to almost £20bn last year as lockdown restrictions buoyed the e-commerce giant.

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