More than half a million UK businesses are in significant distress because of the economic effects of the pandemic, according to new research.
Insolvency consultants Begbies Traynor claimed that the second wave of the coronavirus has put even more pressure on companies still struggling to recover from the first lockdown and it had found 557,000 firms now in financial distress.
Partner Julie Palmer said: “A combination of grim economic data and very poor trading conditions, particularly in the most vulnerable sectors such as hospitality, will take its toll and this is expected to feed through to next year’s first quarter, particularly when the government ends its corporate life-support measures.”
The firm said that 10 of the 22 sectors analysed had seen double digit percentage increases in financial distress this year.
A separate report by the Office for National Statistics (ONS) said two thirds of all UK businesses had a ‘low to severe risk of insolvency’.
The latest Business Impact of Coronavirus Survey (BICS) found that 64% of businesses across all industries are at risk of insolvency and 43% are running on less than six months of cash reserves.
The hospitality industry is most at risk of entering administration with 17% currently trading at severe risk with 7% of all pubs, restaurants and hotels having zero cash reserves.
A UK Hospitality spokesman said: “There can be no doubt of the devastating impact that the government’s restrictions are having on hospitality and pub businesses across the UK.
Massive business failure
“Without urgent sector-specific support for our industry, massive business failure is imminent and hundreds of thousands of jobs will be lost around Christmas from a sector that was in growth at the beginning of this year, as well as in the supply chain that supports them.”
The TUC, representing more than 5.5 million UK workers, has warned of a ‘tsunami’ of job losses as the furlough scheme comes to an end.
The ONS report shows the arts and entertainment industry has been hardest hit by the pandemic with 30% of companies in the sector currently closed.
A government spokesman commenting on the report said: “We understand the pressures businesses are currently under and have put in place one of the most comprehensive packages of business support in the world, worth more £200 billion.
“We have also given businesses much-needed breathing space by extending measures put in place to protect them from insolvency.”
“Our plan for jobs will support businesses in the months ahead, and businesses required to close due to local lockdowns can claim £3,000 a month.
On top of this firms can continue to access billions of loans and guarantees, cuts to VAT and business rate relief.”