One in sixteen businesses face risk of closure

Research by the LSE’s Programme on Innovation and Diffusion (POID) has found that one in sixteen businesses say that they are at risk of closure in the next quarter. The research notes that this period is set to see the Government withdraw critical coronavirus support, such as the furlough scheme.

The research found that during the past six months, we have seen a significant improvement in business confidence across the UK in the Business Impact of Covid-19 Survey (BICS) run by the Office of National Statistics (ONS). The number of businesses that reported being at risk of failure in July 2021 was fewer than half of those in January 2021. The drop was primarily due to improvements in the outlook of smaller enterprises (those with fewer than 50 employees). The improvement is a cause for cautious optimism, although we also see that businesses are still susceptible to possible disruptions due to new variants or snap-policy changes.

To study business confidence, we focus on the question in the BICS that is collected roughly every two weeks. It asks: “How much confidence does your business have that it will survive the next three months?”  We classify the proportion of businesses who respond with “low” or “no” chance of survival as being at-risk of closing permanently.

The latest findings show that 6.3 per cent (1-in-16) firms are at risk of failure, covering just over 1 million jobs.  This is the lowest level since the beginning of the BICS survey, which began collecting data in September 2020.

Looking forward, the tapering down of Government support for furloughed workers and subsidised loan schemes may give rise to additional volatility in the number of firms at-risk of failure.

The latest official numbers from HMRC showed that 1.9 million jobs remained on full or partial furlough at the end of June 2021. Even more recent survey data suggests a 31% decline in the number of furloughed workers since these HMRC numbers were released. While the end of the furlough scheme will have an impact on employment and business closures , this is likely to slow rather than reverse the recovery in business confidence.

The reort concluded that the removal of Government support, possible new variants, and the ever-present risk of localised spikes in infections could make the rest of 2021 a quite volatile period. Nonetheless, the UK is in a much stronger place both economically and epidemiologically today than just six months earlier.

Peter Lambert author of the POID research, said “The end of the furlough scheme would be an inflection point. There will probably need to be some continuation of support in specific sectors with a lot of people left in the lurch without targeted support.”