AS I SEE IT: Huge hurdles await many businesses as they get back to ‘normal’, writes TERRY MURDEN
The widely expected reopening of the economy has turned 9 August into our date with destiny, the day when life gets back to near-normal. Even the First Minister, despite her refusal to call it Freedom Day, declared it as “probably the most significant date so far”. Yes, so far. Arguably a more significant date for business will be 30 September, the day when the furlough scheme ends and we are all at the full mercy of the markets.
The latest government figures show that around 2.3 million employees across the UK are still being furloughed. As of 1 October those 2.3m relying on the state for their wages will somehow have to work their way back into the labour force, or fulfil the fears of pessimists who last year forecast the longest dole queue since the early 1980s. In January this year, as the country plunged back into lockdown, the Federation of Small Businesses was predicting “at least 250,000 small businesses could shut up shop for good this year”.
Yet the reality has turned out to be somewhat different. Business owners and managers don’t run their companies according to economic charts or algorithms. When the going gets tough a survival instinct kicks in. They work longer hours, make salary sacrifices, and draw on bundles of adrenalin. They refuse to see their creations beaten into submission by an invisible bug or the refusal of governments or money lenders to see them through.
Indeed, while some surveys understandably point to uncertainty and wavering confidence, there are many firms doing extraordinarily well and many will defy the worst-case predictions.
A report last month by Interpath Advisory noted that the number of corporate insolvencies across the UK more than halved during the first six months of 2021 as the array of government Covid-19 support measures and a generally supportive lending community continued to help businesses trade their way through the pandemic.
Yes, even the bankers were ready to play their part by helping businesses survive, largely because they don’t want to be left with lots of failed clients and bad debt. The recent banking season has borne this out with banks reducing their provisions for impairments as customers manage their way through the crisis.
More companies are also handing back the furlough money they have received and even one or two retailers are paying back their business rates relief. What’s more, far from seeing a collapse in jobs, the reverse is now evident with many companies saying their number one concern is a shortage of staff and difficulty in hiring the right people.
So why the continuing worries over 30 September?
For one thing, circumstances change so rapidly that it is difficult to predict with any accuracy where the economy will be in just under two months’ time. Look at how many times the highly-paid forecasters at the various financial institutions have had to revise their numbers.
Another growing concern, alluded to above, is that thousands of companies that do survive beyond the autumn will be carrying mountains of debt. Just how they will repay the government and their bankers is anyone’s guess, but debt is likely to claim many victims despite the best efforts of lenders to keep them trading.
Euan McSherry, a disputes lawyer at Aberdein Considine expects a lot of work in Q4 over business viability. as companies see the support packages that have kept them going suddenly switched off. It is likely to lead to disputes between companies and suppliers over contracts and orders.
“I think we will see a lot of director-led petitions to wind companies up as well as creditor action,” he tells me. “Insolvency practitioners are hiring as there is expected to be a lot of insolvency activity in the Scottish market.”
Even less predictable than an economist’s nailed-on certainty is the behaviour of Covid-19. The easing of restrictions is predicated on the virus receding and becoming “manageable”. Should new variants, particularly vaccine-resistant variants, begin to spread then all bets will be off and we could be back in another lockdown.
For the moment, let’s try not to get too far ahead of ourselves. It may not be Freedom Day on 9 August, but we are being liberated from the tyranny of Covid to savour more of what we’ve lost, and to prepare for whatever is to come.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business