Gloomy West firms start to axe jobs as they count cost of coronavirus on profits

August 24, 2020

The coronavirus pandemic has hit profits at more than 60% of firms in the West of England – with nearly one-in-seven fearing they will never return to pre-Covid levels of activity, according to the largest business survey in the region.

Just under a quarter of firms have, or plan to, axe jobs with a further 44% yet to decide on their future headcount. 

Unsurprisingly, 44% of businesses are concerned about their current financial position – a figure that rises to 75% when looking to the future.

The bleak picture emerges from the latest survey held by Business West, the region’s largest business group and the organisation behind the Swindon &  Initiative.

Some 519 firms took part in the survey between July 21 and August 4 – the period when restrictions were being eased after more than three months of lockdown.

Business West believes it to be the largest survey of its kind carried out in the UK to gauge the recent business impact of Covid-19. It also gives a valuable snapshot of the prospects of small firms in the region just as the economy slumps into recession. Organisations with fewer than 10 employees – referred to as ‘micro’ entities – made up two thirds of respondents.

The results reveal that 33% of respondents describe the impact of the pandemic on their business as “extremely negative”, with a further 43% saying it has been negative. Some 24% anticipate the recovery will take more than a year

In contrast, 9% said it had been either positive or extremely positive and 17% had taken on additional staff since lockdown.

The survey results also shed significant light on the uptake of the Coronavirus Job Retention Scheme (CJRS) – or furlough scheme – in the region.

Some 38% of businesses used CJRS to furlough three quarters or more of their staff, although just over a third of all firms did not make use of it at all. Two thirds  expect to make less than a quarter of their furloughed staff redundant while  68% do not expect to make any of their furloughed employees redundant.

Nine in 10 of the firms planning to shed staff expect to do so before November. Business West said this significant concentration of job cuts in a such a short space of time could be viewed as positive as redundancies are not expected to materially spill into 2020 – fewer than 3% of respondents said their redundancies would take place beyond next January.

In addition to redundancies, employers have taken extensive steps to reduce labour costs with 49% cutting paid working hours. Employers have also encouraged or plan to encourage employees to take unpaid leave (23%) or reduce employee salaries (32%). 

These statistics show that labour cost reductions go far beyond reported job losses, with take home salaries of workers in the region adversely impacted – a contraction in demand for goods and services is highly likely, according  to Business West.

The most dramatic impacts, predictably, were on profitability, the survey shows. As well as 61% of respondents reporting a decrease, half had experienced a decrease in cash reserves while liabilities including loans had increased for 28%.

The survey also explored whether the enforced homeworking for many staff during lockdown would become the ‘new normal’. Just over half plan on a greater use of homeworking for at least part of their workforce with 64% increasing their use of video conferencing to save business travel budgets.

However, there is as yet no overall trend, with 60% saying they would not change their business premises requirements as a result of the pandemic, and while 17% anticipate needing less workspace as more of their staff work remotely more, just 6% plan to close their premises completely and move wholesale to remote working.

Respondents also expressed an interest in sustainable travel and alternatives to travel as a result of the pandemic with 54% looking at increasing uptake of cycling and 39% wanting to increase uptake of electric bikes and scooters.

Just over a third were also investing in infrastructure to securely store bikes and installing electric charging points for zero emission vehicles. 

Business West managing director Phil Smith, pictured, said: “With so much public discourse focussed on the ‘shape’ of the recovery, with ‘U’, ‘V’, ‘L’ and many other letters to choose, this survey offers real insight into how our region is affected by, and recovering from, the most significant economic shock in modern times.

“Unfortunately for the business health of our region, however, all our results point to a longer-term negative impact of Covid-19.

“The financial health of our region’s business community is vital to our area recovering and thriving, yet Covid-19 impacts cannot be overstated.”

He said the survey showed business confidence had been badly damaged and there was reduced capacity to invest and grow. Fresh support was therefore required to restore business confidence and return businesses to growth, arresting the decline of recent months.

“The wider speed at which the economy and individual business income recovers will also be critical to levels of unemployment and underemployment moving forward,” he added.

“Our survey suggests that, other than the devastating personal impact of redundancy, some of the actions taken by businesses will be short term with no longer lasting implications for workers in the region.

“However, salary cuts and a move to more use of part-time and home-based working suggest a longer-term trend. Household purchasing power and confidence has suffered more of a decline than just the jump in the claimant count suggests, significantly hampering the chances of a consumer-led recovery in our region.

“One upside of coronavirus is the potential long-term benefits of homeworking and other behavioural changes on air quality in our region, however, the implications for commercial office space remain unclear.”

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