Covid-19 and the UK’s insolvency epidemic

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The Covid-19 pandemic has had a huge impact on businesses across the UK, and many are still feeling the after-effects. From April 2020 to March 2021, a survey of firms across all sectors reported that sales were on average 21% lower and investment was on average 26% lower than would normally be expected. The wide-reaching consequences of Covid-19 have been unprecedented, and there is no doubt that the aftershocks of this tragedy will be felt within multiple sectors of the UK’s business landscape for decades to come.

Covid-19 and its impacts on UK business

The major causes of disruption to UK businesses as a result of the Covid-19 pandemic are twofold: most obviously, businesses across the UK have been forced to close or operate at lower capacities as a result of social distancing regulations enforced to reduce the spread of the virus.

However, UK businesses have also been hit by disrupted international supply chains; from as early as February 2020, when Wuhan was first locked down, many companies realised that the supply of parts and components manufactured in China would be sparse in the coming months. The downside of a globalised supply chain is that almost all UK businesses use items that are in some part reliant on other nations.

Thousands of businesses across the UK have been either entirely or partially closed for much of the last eighteen months. It’s not hard to imagine the effect this has had on those businesses’ finances; research conducted by Simply Business concludes that Covid-19 will cost SMEs an estimated £126.6 billion – which is double

Do we have an insolvency problem?

In many cases, the final result of Covid-19, and the restrictions that have been imposed on UK businesses for the past 18 months, will be insolvency.

Antony Batty, an insolvency practitioner based in the UK, is braced for a surge in problems, but only time will tell.

In 2020, the UK economy shrank by nearly 10%, with millions of people unable to work due to restrictions. Throughout the year, government loans and subsidies helped many businesses to stay afloat, but 12, 557 underlying company insolvencies still took place throughout the year.

In March 2021, more businesses across the UK were declared insolvent than earlier in the year, although levels were still below the 2020 peak. Figures showed that 992 companies in England and Wales went insolvent in March 2021; 925 in April 2021; 1,011 in May 2021; and 1, 207 in June 2021. With the number of insolvencies rising every month, it’s no wonder that UK business owners are worried about the coming months. As the UK’s support for businesses winds down this summer, including an end to the life-saving furlough scheme as well as reduced business rates and other sources of government help, what does the future look like for UK SMEs?

After crisis: The state of UK businesses

As of August 2021, it’s finally looking like the Covid-19 epidemic may be winding down, at least domestically here in the UK. Vaccination figures are up, cases are falling, and restrictions have almost been completely lifted for the first time since March 2020.

And yet, businesses across the country can’t rest easy just yet. As Covid-19 draws to a close, so does government help; but the UK’s high streets are not yet business as usual for many. Research by Springboard shows that retail footfall in the UK in the week leading up to 3 July 2021 was 72% of the level seen in the same week in 2019.

It’s not just that many consumers are still worried about Covid-19; it’s also indicative of a loss of trust in UK business by both individuals and business owners themselves. The UK’s tentative recovery still feels shaky at best, and the pandemic has served as a harsh reminder of the realities and risks that are undertaken by business owners up and down the country. During the pandemic, 81% of business owners felt they hadn’t had enough support from the government.

With our eyes opened to the true risks and pitfalls of running a business in the UK in 2021, it’s no wonder that insolvencies and bankruptcies remain so high. With dwindling support from the treasury and a lingering reticence in consumers, the challenges facing businesses across almost all UK sectors are sizeable. Perhaps the biggest beacon of hope for business owners across the UK – as well as individuals feeling burned out by the pandemic – is the promise of a relatively normal Christmas.