Around 900,000 small firms at risk in ‘cruel spring of bankruptcy’ if Covid help stopped, Rishi Sunak warned

Around 900,000 small firms – employing 2.5 million workers – are at risk of going bust if Covid-19 rescue schemes are wound up, bleak research is warning.

The businesses face “a cruel spring of bankruptcy” unless Rishi Sunak extends the hugely-expensive help due to expire in March and April, concludes the London School of Economics-led study.

The Chancellor is known to want to start repairing the country’s battered finances at the Budget on 3 March – but the research warns cutting off rescue funds too soon would be a disaster.

Backed by Gordon Brown, it concludes that business closures threaten to be more than  three times higher in the first quarter of 2021 than the equivalent period of 2019.

Some 390,000 registered businesses, employing 1.9 million people are “at-risk” – and 906,000 in total, boasting 2.5 million staff or 9 per cent of all jobs in the UK, Office for National Statistics data suggests, it says.

“Without further policy action, businesses face a cruel spring of bankruptcy,” said Professor John Van Reenen, of the LSE’s Centre for Economic Performance.

And the former Labour prime minister added: “Governments cannot afford to be behind the curve-especially in a crisis. They have to be at least two steps ahead.

“But, today, the fate of thousands of small businesses hangs in the balance; millions face an uncertain future after March when the furlough is to end; youth unemployment is already at record levels.

“It is time to offer new hope to what will otherwise be dying firms.”

As hopes of an early easing of the latest lockdown fade, the odds are lengthening on Mr Sunak raising taxes on 3 March – despite the predicted record £400bn budget black hole.

But the job retention scheme is due to expire at the end of April, even though 2.7m workers are still furloughed and the jobless count is forecast to reach 2.6 million later this year.

And the emergency business loan schemes, costing a whacking £68bn, will end a month earlier on the current timetable.

The report calls for the loan subsidy scheme to be extended, for the government to buy stakes in companies to save them and for a new collaboration with banks which would see them administrate government lending.

The Seed Equity Investment Scheme should be expanded to help to encourage start-ups, “not just help existing companies”.

Following the blueprint would allow the Chancellor to prevent “the liquidity crisis of 2020 becoming the solvency crisis of 2021,” Mr Brown said.


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