Almost 9 million jobs are at risk as some 600,000 UK employers could collapse in the spring, due to a lack of cash reserves as the pandemic continues to take its toll on all sectors.
Research from the think tank Institute for Public Policy Research (IPPR) found that the number of firms with less than three months’ cash reserves, considered a danger point for a business, rose sharply over the four months to the end of January – from one in four to one in three. This was despite two new rounds of cash grants for some firms.
The IPPR said said a significant number of jobs could be lost if the cash crisis for firms of all sizes is not quickly addressed and the government doesn’t extend its support, which is due to end in the next couple of months.
Existing business support schemes, including loan guarantees, the business rates holiday and furlough support will end in late March and April.
Most companies will soon be expected to begin repaying government-backed loans made during the pandemic, and to start paying backdated VAT bills for the past year.
The IPPR said it is “calling for rapid action by the chancellor to save the businesses on which UK economic recovery will depend when the lockdown is gradually eased, by extending and enlarging business support now.”
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Its report also found that small businesses – those employing fewer than 50 people - are at greatest risk, with 40% now having less than three months cash buffers.
Half of all firms involved in hospitality, food and other services are now dangerously low on cash, as are 40% of those in the arts, entertainment and recreation sector. Almost all sectors are significantly more strapped for cash than in the autumn.
The IPPR called on Chancellor Rishi Sunak to take key steps to prevent what it deems “unnecessary business collapse.”
This includes extending existing support schemes until the economy is fully open again, and changing the “lump-sum system” of grant support so it is more closely targeted to firms’ needs.
It also recommends the government offer cash injections to struggling but viable businesses in return for an equity stake which could be held within a Citizens’ Wealth Fund and provide a long-term return on the investment.
Carsten Jung, IPPR’s senior economist, noted that “in just a few weeks, UK businesses face a dangerous precipice when the many kinds of government support that have kept them going for a year are suddenly taken away.
“For the sake of the economic recovery, businesses should be given a boost. The time for action to save our economy is now.”
Last month Sunak warned Britain’s economy will get “worse before it gets better,” in a sombre message about the year ahead.
Sunak used a statement in parliament to highlight recent official figures showing the economic downturn has been the worst in 300 years, costing around 800,000 jobs.
He also announced £4bn ($5.4bn) in new grants to support retail, hospitality and leisure firms, and another £594m for struggling firms in other sectors.
Meanwhile, the Federation of Small Businesses has warned that more than a quarter of a million UK small businesses are set to collapse over the next 12 months.
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