Financial challenges faced during the COVID-19 pandemic resulted in companies scrambling for support by the UK government in a bid to survive. With many non-essential businesses being unable to generate much revenue during the lockdown periods, unsustainable wage expenses were amongst the first issues tackled by the UK government to avoid mass lay-offs that would severely depress the economy.
Announced on 20 March 2020, the Coronavirus Job Retention Scheme (CJRS) has helped protect jobs by supporting businesses in paying their employees during the COVID-19 pandemic.
As of 14 May 2021, a cumulative total of 11.5 million jobs had been supported by the CJRS, with 35% of all UK employers having staff on furlough as of 30 April 2021.
The UK government also introduced various loan support schemes to help businesses cope with operational expenses such as debt, insurance, rent and taxes. The total value of loan facilities approved for UK businesses through the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Bounce Back Loan Scheme (BBLS) was £75.1 billion as of 21 March 2021, according to data from the British Business Bank.
The effect of the pandemic in each UK region can be measured by looking at the total support received. Companies in London, the South East and the North West have received the highest levels of support, primarily because these regions account for the largest shares of UK businesses and gross value added.
London
London, one of the most important international hubs for business and finance, is the region that has been hardest hit by the COVID-19 pandemic. London accounted 17% of all employments furloughed through the CJRS as of 30 April 2021, the largest proportion of all UK regions.
The high level of support received by London is largely due to the hospitality sector being heavily affected by the pandemic, with London having the highest share of hospitality businesses.
According to the Office for National Statistics, London accounted for 18.2% of the UK’s hospitality businesses, at 24,350 enterprises, in 2020.
Prolonged government-imposed closures of hospitality establishments meant these businesses were in dire need of financial support from the UK government to cope with unsustainably high costs. The hospitality industry groups with the highest furlough take-up rates are beverage serving activities (70%) and hotels and similar accommodation (65%).
London is also considered the UK’s fashion capital and is therefore home to the most boutique and luxury shops in the country. Clothing retailers were also forced to close their stores on numerous occasions in line with government guidelines, facing significant financial challenges as a result. IBISWorld estimates that 18.8% of all clothing retailers are located in London, more than in any other region.
Being the hardest hit region, London has also received the highest number of loans offered to businesses.
In total, businesses in London have accounted for 17% and 21% of the total lending provided by the CBILS and BBLS respectively, equating to approximately £13.8 billion.
The wholesale and retail trade sector and the construction sector were the largest users of these schemes, taking up between 14% and 18% of all loans offered.
The South East
The South East is the most populous UK region, accounting for 13.7% of the UK population. it Is also the second wealthiest region, which is why it is considered the second hardest hit by the pandemic.
As of 30 April 2021, the South East accounted for 16.2% of all employments furloughed through the CJRS.
Overall, the South East accounted for 14% and 16% of loans offered under the BBLS and CBILS respectively.
The South East also contains many part-time employees in hospitality industries, with the region accounting for 14.7% of all hospitality businesses. However, unlike London, the region also contains a large proportion of manufacturing and engineering businesses, which were significant users of the CJRS and government loan schemes.
Manufacturing businesses had 276,800 on furlough as of 31 March 2021, accounting for 6.4% of all furloughed staff.
Manufacturing companies took 13% of all the loans offered under the CBILS with a value of approximately £2.6 billion. The Motor Vehicle Manufacturing industry is particularly prominent in the region, with approximately 17.1% of the industry’s establishments located in the South East, the highest of any UK region.
Global travel restrictions, car showroom closures and supply chain disruptions exerted significant downward pressure on automotive production, leaving UK car manufacturers struggling with low capacity utilisation rates and unsustainably high operational expenses. According to the Society of Motor Manufacturers and Traders, just 920,928 cars were produced in 2020, representing a 29.3% contraction on the previous year.
The North West
The North West is the third most affected region by the COVID-19 pandemic. The North West has a historic connection to manufacturing with a specialisation in the production of chemicals, textiles, pharmaceuticals and technology. Liverpool and Manchester, the region’s most economically important cities, are urban centres of trade and production.
The North West accounted for 12.8% of all employments furloughed through the CJRS as of 30 April 2021.
The North West has also benefited greatly from the CBILS and the BBLS, receiving approximately £6.5 billion and accounting for 11% of total lending provided by each scheme.
The region’s reliance on manufacturing resulted in many businesses struggling to maintain operational efficiency in the face of challenging demand conditions. The North West has the highest regional establishment share in the Nuclear Fuel Processing, Flat Glass Manufacturing (33.3%) and Inorganic Basic Chemical Manufacturing (31.8%) industries.
Conclusion
The economies of London, the South East and the North West have been the most heavily affected by the COVID-19 pandemic, displayed by them having received the most financial support from the UK government. These regions have strong presences in the retail, hospitality and manufacturing sectors, all of which have been severely hit by the challenges presented by the pandemic.
Although the CBILS, CLBILS and the BBLS all ended on 31 March 2021, the CJRS has been extended until 30 September 2021 to help companies recover from the challenges faced at the height of the pandemic.
Following this date, employers will no longer be able to receive government support for paying staff, which could result in mass layoffs. Therefore, the end of the scheme could cast a shadow over the UK economy’s road to recovery.
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