15,000 North East businesses fear going bust in next year, study finds

More than 15,000 small businesses fear they will go bust in the next year – with the figure rising even higher in the event of a second national lockdown, a new survey reveals.

The study by Newcastle bank Virgin Money found that 15,855 SMEs across the North East say it is likely their business will close permanently in the next 12 months as a result of the coronavirus crisis, with that figure rising to 24,764 if a second national lockdown is introduced.

Nationally, almost a million small firms fear they could close if there is a second lockdown and two-thirds of firms questioned said their profits were lower than in April because of the coronavirus restrictions.

The Virgin Money Business Pulse, which questioned small businesses at the start of this month, reports that 21% of firms had seen profits more than halved, while 42% of SMEs, excluding sole traders, expect their workforce to be smaller in December than it is in September.

The study also reports on regional inequalities within the UK, saying that London and the South East have been pulling further away from other regions over the last six years, with the North East furthest behind.

Gavin Opperman, group business director at Virgin Money, said: “The results make for sober reading, but they are unsurprising given the extraordinary disruption of the last six months.

“The Covid-19 pandemic has caused the deepest recession on record and recovery is slow, despite the national GDP figures regaining ground. The UK’s SMEs have experienced unprecedented strain, with sales and profits affected by workplace closures, supply chain disruption, diminished productivity and declining household incomes.

“Despite the pickup in economic activity in the summer months, businesses are by no means out of the woods. As we head into the autumn and winter months with newly introduced restrictions, the next six months will be critical for many businesses.

“SMEs have shown tremendous resilience and innovation this year, with some excellent examples of creativity to pivot business models and maintain operations. But there is no doubt there are tough times ahead.”

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Virgin Money said the survey had uncovered some positives, with 15% of SMEs stating their profits were unaffected during lockdown and 10% noting their profits were higher, as demand for specific products, such as food and PPE, increased.

The lockdown has also prompted almost a quarter of SMEs to update their strategy and 12% have improved existing products and services.

But Simon Hanson, North East development manager for the Federation of Small Businesses, said: “There’s no doubting that smaller businesses are facing some significant challenges across the North East.

“These figures reinforce how vital it is that smaller businesses are supported and the stark threat to our regional economic recovery if they’re not.

“The lack of clarity and certainty around what smaller businesses can and can’t do during the further local restrictions placed on the North East in the past few weeks is not helping. We need to see smaller businesses being supported more effectively to plan for the future and make the changes needed to be Covid secure.

“It is absolutely critical that we get grant support to small and micro businesses quickly to help them adapt and provide some much needed support for cashflow.”