HOW CAN THE HARDEST HIT SECTORS SURVIVE?
Released On 16th Feb 2022
The rise of Omicron dealt a harsh blow to the hospitality, travel and tourism sector at the end of 2021, during a period that is often essential to the yearlong profitability of some businesses in these industries.
The decision to implement new restrictions, which while not closing bars, restaurants or hotels fundamentally reduced their trade, will undoubtedly be reflected on in future decisions about the pandemic, but whether it was the right choice to make for the nation is hard to determine at the moment.
It was never going to be an easy decision for any person, organisation or Government to make and inevitably, Covid cases have increased regardless, as the more infectious variant spreads across the nation.
However, we are now in a new year, and the evidence is slowly beginning to suggest that infections are plateauing in some areas, and cases are leading to fewer hospitalisations and deaths.
It is for this reason that the Government's policy on testing and isolation have changed, with most ending in March.
Given that many in the hospitality, travel and tourism sector continued to struggle due to the Government's measures, what future do they have?
Estimating the damage
We now know from the latest insolvency data that the number of registered company insolvencies in December 2021 was 1,486.
This was 20 per cent higher than the number registered in the same month in the previous year and 33 per cent higher than the number registered two years previously.
In the preceding months, there was already a growing number of insolvent businesses. In fact, data from the Insolvency Service shows that the number of registered company insolvencies in Number 2021 was 1,674 - higher than in December.
Again, this was 88 per cent higher than the number registered in the same month in 2020 and was 11 per cent higher than pre-pandemic figures from November 2019.
November last year was the first time since the beginning of the pandemic that the monthly number of registered company insolvencies was higher than pre-pandemic levels.
This trend was due to the higher number of creditors’ voluntary liquidations (CVLs), which were 43 per cent higher than in November 2019. In comparison, other forms of business insolvency were still below pre-pandemic levels.
Unfortunately, we don’t have much data on the specific sectors that suffered the most during this period but given the number of empty shops and restaurants on many of our high streets the evidence is there to see.
To estimate the true impact of the most recent restrictions it is important to look at the support, or lack thereof, offered to businesses in recent months.
Support for hard-hit industries
Following the impact on businesses of the recent Covid measures, particularly the effect of Omicron on trade in the hospitality sector, the Government announced an additional support package containing three key elements:
- Dedicated support for the hospitality and leisure sectors in the form of one-off grants worth up to £6,000 per premises. There will also be more than £100 million in discretionary funding for local authorities to support other businesses.
- The reintroduction of the Statutory Sick Pay Rebate Scheme (SSPRS) for employers with fewer than 250 employees. This will apply to up to two weeks’ Covid-related absence and is effective immediately, with employers able to make retrospective claims from mid-January.
- £30 million for cultural organisations through the Culture Recovery Fund.
The grants for the hospitality and leisure sectors have already been administered by many local authorities, but there are serious doubts about the effectiveness of this funding.
Previous financial measures were far more generous, not least the Government-backed loans and furlough scheme offered during lockdown.
In comparison, while welcome, the funding has been a drop in the water compared to what some businesses require.
For some larger travel, hospitality and tourism businesses, this funding only covered a small percentage of their monthly costs, and many experienced shortfalls at the beginning of the year as a result.
Despite this support and a return to ‘normality’ in recent weeks, many businesses are still likely to fall by the wayside as they grapple with lost income during the busy festive period, rising input prices that are being driven ever upwards by inflation, poor consumer confidence and the repayment of loans that they have previously taken out.
It is no exaggeration to say that the sectors hardest hit by Covid may be teetering on a knife-edge between failure and survival.
With no immediate Government financial support forthcoming, it is important that businesses in distress act now and seek out professional insolvency and restructuring advice so that they can put measures in place to hold off creditors and give themselves the breathing room needed to rebuild and recover. To find out how we can help, please contact us.
