Consultants expecting insolvencies in wake of chancellor’s Winter Economy Plan

The new economic support for businesses set out by UK chancellor Rishi Sunak in the Winter Economy Plan is good, but is unlikely to prevent a wave of insolvencies, say Mark Supperstone, co-founder and managing partner at Resolve, a business advisory and investment house.

The plan – announced last week – includes a new jobs support scheme which will replace the furlough scheme at the end of October, and will last six months. Sunak also announced a further deferment on VAT bills for businesses.

“I think there will be insolvencies, but I think at the moment the support that is being offered is just buying businesses that additional time to adapt and turn their business around,” says Supperstone.

“What we’re finding at the moment is that a number of businesses are in financial difficulty but are not necessarily going into an insolvency process because of these support schemes. The bounce back loan has been great for businesses, so has the coronavirus business interruption scheme. I know a lot of businesses have taken that on, also the fact that HMRC have deferred VAT and PAYE [Pay As You Earn] also means that there’s less pressure on businesses,” he adds.

While the support schemes had given businesses time, Supperstone concedes that he expects insolvencies to tick up as the furlough scheme comes to an end at the end of October and later in 2021 as VAT bill start to be repaid. He adds that it’s inevitable that as insolvencies rise, so too will unemployment, and that the new jobs support scheme will not prevent large numbers of people who were placed on furlough from losing their job permanently.

Announcing the plans last week, Sunak told the House of Commons: “What I want to be able to do is to provide as much support as possible given the constraints we operate in. We obviously can’t sustain the same level of things that we were doing at the beginning of this crisis.

“I cannot save every business, I cannot save every job,” he added.

Supperstone agrees, arguing there must come a point when businesses begin to stand up on their own two feet.

“Businesses also have to do something themselves. They can’t just rely on the government, it’s up to them to adapt their business and try to change their business in light of these circumstances.”

However, many businesses, in particular in the hospitality sector and the arts, argue that is unfair to take away support when there are restrictions in place which prevent them from being an otherwise successful business.

Around one in four people in the UK are currently in lockdown, while new restrictions nationwide mean pubs and restaurants must close by 10pm, preventing many theatres, pubs and restaurants from being viable businesses.

Supperstone says it’s clear the government is doing everything it can to avoid a second national lockdown, because then the type of support for business required would have to drastically change.

“The hospitality sector in particular is on a knife edge. It was a difficult sector before the virus came along. It’s pushed it to this position, and I think a number of those businesses are just surviving and a second lockdown would almost destroy them,” Supperstone says.