THE IMPACT OF COVID-19 ON THE BUSINESS COMMUNITY IN WALES
As businesses begin to open again and people go back to work, what has been the impact to date on the business community in Wales?
According to the latest data from the ONS, there are considerable challenges facing the Welsh economy as we began the slow journey to recovery.
For example, Wales has fewer businesses (87%) that are continuing to trade during this pandemic than any other region or nation of the UK with the West Midlands (93%) having the highest proportion of those still operating.
In addition, whilst Wales has the second lowest proportion of firms where overall turnover has decreased in the UK after Northern Ireland, it also has the highest level of businesses (18%) where turnover has decreased by more than 50%. This possibly suggest that more firms will be facing critical cashflow problems soon if their income does not improve.
Over the last few months, there has been a higher dependency of Welsh businesses on government support with four out of five businesses in Wales having applied for the Coronavirus Job Retention Scheme (the same as the UK average). Government-backed accredited loans or finance agreements have also been popular with Welsh firms with 22% applying for these, the highest level in the UK.
In addition, nearly one in three of Welsh businesses have applied for Government-backed accredited loans or finance agreements as compared to 20% for the UK which no doubt reflects the additional grants put into place by Welsh programmes such as the Economic Resilience Fund.
In terms of other financial support from government, whilst a higher proportion of Welsh firms are taking advantage of business rates holidays, deferring VAT payments and the HMRC “Time to pay Scheme” are not as popular.
More importantly, access to all of these programmes have been more important to firms in Wales than any other part of the UK, with 74% stating that the various initiatives and schemes had helped them to continue trading over this difficult period.
The dependency on the public purse to enable firms to survive the Covid-19 recession is also shown by the finding that only 10% of firms in both Wales and the rest of the UK had received other types of financial assistance from banks or building societies although nearly 80% of these said that this had helped them to keep going.
Yet all of this support may yet be not enough to enable Welsh firms to survive the rest of 2020 unscathed with 44% (the highest level in the UK) stating that they had less than six months cash reserves left in the business. This shows the importance of restarting the Welsh economy as soon as possible whilst mitigating against any potential Covid-19 outbreak again.
Of course, Wales has been slower than the rest of the UK in opening up its tourism and hospitality sectors and there are still questions as to whether this delay could be damaging in the longer term for the industry despite the new measures such as the cut in VAT introduced by the Chancellor to boost spending.
For example, the ONS data shows that only 43% of accommodation and food service firms are currently trading as compared to 85% of all industries in the UK. In terms of income, 86% of firms in this sector have decreased their turnover as compared to 58% for the UK as a whole.
Given this, it is not surprising that a massive 96% of firms in accommodation and food service have furloughed their staff (as compared to 80% for all other industries) and that the highest level of access to government loans and business grants is also to be found in this sector. The fact that 79% of these firms (or three times the UK average) are utilising the business rate holiday scheme also demonstrates the increased dependency by this one sector on government support.
This suggests that it may be difficult for many of these firms to survive the winter without further targeted government support especially in those parts of Wales dependent on seasonal tourism where the opportunity for income has essentially been limited to one month.
Of course, the Covid-19 virus has not suddenly created a group of bad businesses. Nothing could be further from the truth and whilst there may a few that were financially in trouble prior to the lockdown, the vast majority have been closed through no fault of their own and face closure because of circumstances beyond their control.
Therefore the question for both governments in Westminster and Cardiff Bay is whether a more nuanced and targeted approach needs to be taken to supporting certain industries that will not escape financial ruin over the next year.
Whilst other sectors will have their cheerleaders over the next few months, many would argue that these statistics demonstrate a strong case for the tourism industry to fall into that category.
The question, of course, is whether politicians will feel the same and provide the financial help needed.