A BusinessRescueExpert special report into an unprecedented year

It’s nearly been 365 days since the UK went into its first national lockdown as it faced its first major public pandemic in over 100 years.

From March 23rd 2020, companies in every sector closed by order and we all had to work, educate and shop from home to contain the spread of Covid-19.

Nothing has really been the same since – especially for businesses.   

We’ve spent the past 12 months helping firms that have fallen into financial difficulties to restructure and pay off their debts under new arrangements or allow them to efficiently close so their owners can move onto new challenges when the lockdown is gradually lifted completely. 

Alongside our business rescue and recovery work, we’ve also spent a year observing, collating and analysing data from various sources to compile a comprehensive and wide-ranging report of what happened to our country and its companies.

The “Year of Lockdowns” story shows what effect restrictions have had on the various industrial sectors, geographic regions and on the individual businesses and employees that make them up.  

This is the story of 2020 – a “Year of Lockdowns”. 

Covid-19 caused more economic damage to the UK than Napoleon, Hitler and the Kaiser combined

In an already historic year, we should start with the news about history being made.  

The Office of National Statistics reported that 2020 saw UK official GDP shrink by 9.9% in the previous 12 months – the largest annual fall in over 300 years since the Great Frost of 1709. 

The collapse is even greater than any previously recorded including during the Napoleonic wars; World Wars One and Two; the great depression of the 1920s and the great recession of the late 2000s.  

The economy regained some ground in the second half of the year as some lockdowns were eased and the “Eat Out to Help Out” scheme attracted more people to support their local pubs and restaurants.

Despite these positive factors, the economy was still 6.3% smaller than it was in February, the last full trading month before the first lockdown was implemented. 

This was the biggest fall among all the G7 nations with USA GDP down 3.5%; Germany down 5% and Japan down 5.6% by comparison.

One in three UK workers were furloughed as unemployment rose to a six year high

Since the beginning of the lockdown and the Coronavirus Job Retention Scheme (CJRS) being rolled out, 11.2 million workers have been furloughed in the previous 12 months. 

With 32.6 million people employed in the UK, this means that one in three workers was in receipt of furlough pay at some point in 2020. 

The UK unemployment rate also rose by 1.1% to 5.1% by the end of 2020 with 1,744,000 additional people looking for work. This is the highest recorded level since 2015. 

Chancellor Rishi Sunak extended the furlough scheme until the end of September 2021 in the recent budget with employers expected to contribute 10% of furloughed employees wages from July, rising to 20% for August and September.  

The Office for Budget Responsibility (OBR) estimates that £73.6 billion had already been spent on employment support schemes such as CJRS and others by November 2020 so this will add to this already striking figure. 

While economic and employment activity are expected to rise, greatly, in the next six months as lockdown is gradually lifted, the end of the furlough and other schemes will still create a moment of hazard for businesses and their employees if they can’t find a way to begin to trade profitably by then. 

Construction bore the brunt of insolvencies by industrial sector

The Insolvency Service reported that since March 2020 there were 8,205 company insolvencies up to and including the end of January 2021. 

Broken down by individual industrial sector they were :

  • Construction – 1,634
  • Hospitality – 1,378
  • Retail – 1,355
  • Administrative & Support – 1,200
  • Manufacturing – 930
  • All others – 1,708

The halting of various building projects, both large and small scale, have badly damaged the construction industry over the previous 12 months. 

This might seem surprising given the historic damage experienced by the hospitality and retail industries but these have been well publicised and several were more visible to the public as an empty shop unit will be more noticeable than an empty building site.

There was also £453.4 million in redundancy pay and other support benefits paid out in 2020 which was the highest amount in ten years and an increase of 31% from 2019.

Another government agency, the Redundancy Payments Service, will make financial payments to employees whose former employers have gone into insolvency and cannot pay any legally due claims. 

Yorkshire and Humber businesses were most likely to become insolvent in 2020

With the help of the Office of National Statistics and The Insolvency Service, we looked deeper into the regional insolvency statistics for 2020 and produced a comparative figure – the Corporate Insolvency Ratio – showing the likelihood of insolvency based on the numbers of active businesses in a region/nation and the number of business insolvencies recorded there. 

The table shows the number of businesses registered in each UK nation and English region, the total number of business insolvencies and the Corporate Insolvency Ratio for each.

Because of certain statistical caveats, the figures are an approximation based on available data rather than a complete and official record. 

On this matrix, the figures show that a business in the Yorkshire and Humber region of England was statistically most likely to undergo an insolvency event than in any other region (1 in 115) while a company based in Northern Ireland would be least likely (1 in 506). 

Additionally, businesses in the North East, North West and West Midlands of England along with London were at greater risk compared to the national average (1 in 207) while Scotland, Wales and every other English region was less likely than the average. 

Why corporate insolvencies went down in 2020

Given all the news and information we already know about the year of lockdowns, it might be surprising to learn that the total number of corporate insolvencies actually fell in 2020. 

They went down to their lowest recorded levels since 2007. 

So what’s going on? The main reasons can be surmised as follows:-

  • Government backed Covid-19 support measures – CJRS; BBL; SEISS etc.
  • Temporary suspension of creditor recovery methods 
  • Reduced HMRC enforcement activity
  • Moratoriums and other insolvency tools launching
  • Advice from financial service regulators that businesses in financial difficulty should be treated with “forbearance and due consideration”

With the exception of the insolvency moratorium, all of these measures are temporary and will be withdrawn by Autumn this year. 

Ironically, 2021 could have many more corporate insolvencies than 2020 had. 

Chris Horner, Insolvency Director with BusinessRescueExpert said: “Ominously, even with restrictions being lifted and economic activity rising, 2021 will be a worse year for insolvencies in several industries than the year of lockdowns was, 

“Government support in the form of backed loans, furloughs and the temporary ban on winding-up petitions and other creditors actions are all expected to end sometime in 2021. 

“Bounce Back Loan repayments and others will begin to come due, businesses will have to decide if they can re employ or redeploy their furloughed workers and creditors that have been under severe financial pressure themselves will finally have the ability to look for repayments that might be critical to their own survival.”

Not on the high street – anymore

The previous 12 months has seen the demise of some of the most storied companies in Britain. 

Debenhams was formally wound-up in the High Court with BooHoo buying its online brands and trademarks to relaunch as an online-only retailer. 

The Topshop, Topman and Miss Selfridge brands of the Arcadia group were bought by ASOS with BooHoo returning to purchase the remaining Wallis, Burton and Dorothy Perkins brands. 

No physical properties were included in any of the deals. 

BrightHouse, the UK’s largest rent-to-own retailer went into administration in April along with Laura Ashley while fitness retailer DW Sports announced it would not reopen in August. 

Regional UK airline FlyBe went into administration in March where it remains until a buyer is found. With other carriers unable to operate a regular, reliable UK-wide service yet, 2021 is another year that might have historical consequences.

Research from the Local Data Company shows how devastating the year of lockdowns was for the retail industry. 

They estimated that 17,532 chain store outlets located in high streets, retail parks and shopping centres closed last year – an average of 48 per day. This is compared to an overall total of 7,655 openings to replace them, or 21 per day.   

The net loss of nearly 3,500 locations was a third higher than in 2019. 

“The rise of online shopping and home delivery which provided a shot in the arm for the hospitality industry, might be a more mixed blessing for retail” said Chris Horner, BusinessRescueExpert’s Insolvency Director. 

“We won’t know for some time how many new habits and shopping methods we adopted in 2020 will stick in 2021 and become permanent or how many will revert to the previous physical model. 

“Some companies might bet big one way or another and hope to reap the benefits of being a successful early mover. Others might hedge their bets and hold back investing, redeployment and retraining which could prove more sensible in the medium and long term but would impact negatively in the immediate future in terms of investment and activity.” 

What about 2021?

We still don’t know how 2021 will unfold as many businesses are still unable to open their doors and trade freely and some won’t until we get into the Summer at the earliest. 

For others, even when they do return, they’ll find that customer behaviour, retail trends and other changes will mean that they will have to recalibrate their own offerings if they want to make up lost ground. 

One thing we can guarantee this year, maybe the only thing that can be, is that BusinessRescueExpert will continue to be here to help advise and guide any business that is having financial issues or doesn’t know what their next professional step should be. 

We offer free virtual consultations for any company that needs to clarify its position and understand what options are open to it. 

The benefit of acting first is that you usually find you have more choices and strategies available than whoever acts second. 

Get in touch and find out what they are for your business – today.