Well, this year has certainly been another memorable one – but not for the reasons we had hoped back in January. This has obviously been another year blighted by the pandemic and we are mindful of all those who have lost friends or family members to Covid. Every one of us have been negatively impacted to varying degrees although some businesses have seen a positive impact either benefitting from increased demand for their products/services or as a result of having identified an opportunity and seized it with both hands.
On the positive side we have seen successes in many areas including businesses establishing an e-commerce offering for the first time; restaurants offering home delivery services during lockdown enabling them to retain their staff and keep their kitchens operating and many people, taking advantage of being furloughed, setting up new “cottage industries” from the kitchen table. These entrepreneurs are to be applauded and supported and we wish all businesses well for the future.
Sadly, many businesses failed during the year with the Insolvency Service statistics reporting company insolvencies 43% higher in the third quarter of this year than the same period in 2020. Unfortunately, we anticipate that this trend will continue now that Government Covid support measures have ended and raw material, staff and energy costs are all rising.
Obviously, the hospitality and leisure industries were hit hard with the lockdowns and we worry for a number of these businesses as fears of the spread of the Omicron variant and the announcement of the move to Plan B in England has already led to a number of large Christmas parties being cancelled. This could be devastating for so many licensed premises that we’re hoping this month would give them a much-needed uplift in turnover ahead of what is always a poor start to the year.
Another big Covid negative this year is the unprecedented levels of commercial property rent arrears which are currently in excess of £6 billion. These have been ringfenced by the Government and landlords are prevented from taking recovery action before March 2022 but this is inevitably a very big concern going into next year. Here at SKSi we are currently working with commercial landlords and assisting them in active negotiations with tenants to find a solution to this sizeable problem. The longer-term impact of this level of arrears should not be underestimated, both in terms of the ability of the landlords to meet their financial obligations and the potential impact that could have on commercial property asset valuations.
Recent reports have suggested that as much as £5 billion of the £47 billion advanced as Bounce Back Loans by the Government could be fraudulent and unlikely to be repaid. Given that new company registrations for 2020/2021 hit a record high of 810,316 which was up 21.8% on the prior year it is perhaps not unlikely that a number of these were for the sole purpose of fraudulently obtaining a BBL. However, on the positive side, we are seeing regular reports of cases being brought against some of the fraudsters and we expect this to continue into 2022.
Not everything bad that happened this year can be attributed to Covid. The 400-metre-long container ship the Ever Given blocked the Suez Canal in March for 6 days and, nine months later, this continues to cause problems as some ships and thousands of shipping containers are still in the wrong location, a problem that has been compounded by the shortage of HGV drivers leading to delays in the movement of containers once they were finally offloaded.
The fuel crisis, another side effect of the driver shortage, caused unprecedented supply chain disruptions just as we started to emerge from covid lockdowns and the current record fuel costs are likely to have a further economic impact into next year.
Will 2022 be a good year?
That really is a difficult one to answer as we would like to stay positive and, undoubtedly, in any economic situation there are successes and failures.
However, the Federation of Small Businesses has warned that tax rises could threaten the UK’s ongoing recovery from the pandemic and that small businesses are coming up against ‘unprecedented strain’, with the cost of doing business higher than ever.
The Institute for Fiscal Studies has predicted that millions of people will be worse off in 2022 as a result of spiralling costs and tax rises.
The Office for Budget Responsibility recently warned that the cost of living is set to rise at its fastest rate in 30 years with inflation quite possibly hitting its ‘highest rate in the UK for three decades’ leaving millions of people worse off in the short term. Next April benefits will rise by just over 3%, but inflation could easily be at 5%. That will be a real, if temporary, hit of hundreds of pounds a year for many benefit recipients.
On the positive side, we suspect that many companies will continue to with allowing employees to work from home for at least part of the week which will improve household incomes through reduced commuting costs. However, this will impact the ancillary businesses that rely on trade from office workers.
The pandemic has also led many businesses to be more creative and efficient with their marketing and promotional activity, particularly with the continued growth of social media channels which should reduce the cost base and so improve profitability.
Whilst we highlighted above the significant commercial rent arrears the new Government Code of Practice sets out very clearly the requirement for landlords to share some of the ‘pain’ of their tenants by way of a write off of some of the arrears and, where feasible, accepting a reduction in rent. This should also help some companies with their bottom line.
We think that the economic recovery next year will be determined by how we deal with the onset of this latest, and any future mutations of Covid and the impact that has both on our freedoms and the wider global economy. Kate Nicholls, the chief executive of UK Hospitality, predicted that revenue from hospitality would fall by 15 to 20% as people working from home were likely to limit their socialising. If this prediction is true, and current restrictions and advice remain into next year this will have a disastrous effect on the hospitality and high street retail sectors.
Thankfully we are not in a position that we have to publish forecasts for next year as there are clearly so many variables. We hope that lessons learnt over the past 18 months will continue to help many businesses and it is certainly true to say of any business that the ability to react and adapt to changing circumstances will help a business get through tough times and will most likely pay dividends in the longer term.
Regular readers of our news articles will know that we always stress the need for prompt action and that advice has never been more important with the challenges businesses have had to face this year and are likely to continue to do so in 2022.
Whatever challenges the New Year throws at us all rest assured we will be here to help you and your business. We wish all our readers the very best for this festive season and we look forward to working with you and supporting you in 2022.