Could the lifting of Covid restrictions be a double-edged sword for business?
Many businesses will welcome the likely unlocking of Covid restrictions from 21 July. There have been some signs of recovery already. In May the OECD was predicting the UK economy will grow 7.2% in 2021.
But as restrictions are being lifted, so are the levels of financial support many businesses have seen from Government.
From furlough to freefall?
From July 2021 employers are starting to make contributions towards the furlough scheme in the UK, where employees get 80% of their salaries while on temporary leave. The Government has reduced its contribution to 70% and employers must find the additional 10%, and this will increase to 20% in August and September when the Government’s share reduces to 60%. After September the scheme may well disappear. That means tough decisions around reinstating staff and finding the cash to pay salaries, or making redundancies.
September could well be a tipping point for employers. We at The Channel Partnership have said before that many ‘zombie’ companies have been able to continue trading because of the layers of support – masking the true picture of their finances. The question is, with the general unwinding of Government support now starting, how many companies will falter?
Corporate insolvencies are at a 32-year low – but look at how the support is tapering or being withdrawn:
• Emergency loan support schemes such as the Bounceback Loan Scheme, Coronavirus Business Interruption Loan Schemes and Future Fund all now closed.
• The ban on commercial rent evictions lifting.
• Repayment of ‘Bounceback’ Covid loans starting.
• Payment of business rates resuming.
• Deferred VAT payments becoming due.
• Repayment holiday period now coming to an end on up to £75bn in Covid loans backed by the Government.
The pressure on cashflow will be at a much higher – and potentially unsustainable – level for businesses.
We haven’t mentioned Brexit, which according to most reports is set to hinder the UK’s recovery, especially in comparison to the rest of the G7, and the associated problems around recruiting staff and materials shortages (for example, in the construction sector). These issues are holding back many businesses that want to seize the opportunity to grow as we move out of the Covid restrictions.
The Channel Partnership is delighted to see the trade credit insurance market now operating normally after the expiry of the temporary reinsurance backing provided by Government. Those insurers are very much open for business to protect the interests of our customers against these threats of financial distress and insolvency.
If you’re concerned about how best to manage your trade credit risk during the challenging times ahead, then please contact Andrew Smith / Tom Rolfe and we’ll share our sector expertise.
Andrew Smith | email@example.com | 07932 567 900
Tom Rolfe | firstname.lastname@example.org | 07889 659 339