Friday, 3 July 2020

Restructuring UK plc 2020/21

As you may have noticed, UK Plc is in a very sickly state. The first impact of Covid-19 was to push over the edge a whole bunch of companies that were teetering on the brink anyway - like Flybe as a prime example. The casual dining sector, hugely oversupplied, had been struggling and now we are seeing barely any chain survive with nearly all of the either in administration or about to be, like Prezzo.

I don't think many of these dining options are going to do much damage to the overall economy, we did not need 3,000 variations on pasta and burgers to really push on in the 21st Century.

However, what is harder, notably for the retail sector but also SME's, is that the rent holidays and mortgage holidays are all going to come to an end in the next few months, along with the need to increase contribution to the furlough scheme.

These extra costs are a huge debt burden on businesses, some of whom may bounce back on pent up demand, but others who thanks to social distancing, will suffer continued slow business. But this slow business will be under the added debt burden above.

This wont be sustainable for many businesses in the medium term. In the short-term many will try to struggle on, but sooner or later the owners will try the administration route or end up in insolvency.

Much of the lending has been arranged by the British Business Bank, which has worked with the clearing banks to distribute the interest-free Government loans.

At the moment and considering the above, a huge chunk of this is going to have to be written off if the businesses fail. Which leads me to the conclusion that in order to keep businesses going why not write-off a big chunk anyway, before the businesses go under?

This will be difficult politically to achieve, but either the Government takes on the debt or the private economy will be ruined - so in a different way to 2008, but with a similar outcome. History does not repeat but it does rhyme. Last time the Government bailed out the banks, this time it will have to be businesses directly.

17 comments:

DJK said...

All of this is true, but it leaves out that every other country is in the same position. Possible exceptions are those countries --- mainly in Asia and Eastern Europe --- that never let the virus get out of control in the first place and as a result, still have a functioning economy. Except that their export sectors will be hit by loss of demand in Europe and North America.

If our economy is going down the toilet, it's at least of some comfort that everybody else's is too. Does using Zimbabwe-style money printing matter when the whole world is doing it too?

E-K said...

Social distancing is the thing which is preventing a return to a rounded economy. The pubs just aren't going to make it. The ones I really like aren't bothering to open on the 4th and I fully understand why.

Elby's link to James Delingpole/Dolores Cahill is excellent.

We now know CV19 has a mortality rate of 0.1% and 90% of those are old and ill - look after them, let the rest of us take our chances.

Figures show that 0.5% will die through the poverty and delays brought by social distancing.

What makes England distinctively England ? Well. I'd say the pubs and the churches and I'm not into conspiracy theories but I do believe in opportunism theories. If you have been trying to abolish England (and many have) then what better opportunity to totally kill off the national character.

dearieme said...

I never read on when I encounter "UK plc". Nor "zombies". Nor anything to do with astrology.

andrew said...

I can tell that your starsign is virgo :)

More seriously

Since 08 asset prices have been inflated
Esp property and shares and people with assets have benefited.

Now it seems that if there is a bit of inflation and a drop in (property) prices those with assets will disbenefit (if that is a word)

I do not see (worldwide) inflation as a problem. It is that inflation applies to different things with different rates of change.

DJK said...

I see the Czech Republic is having an end-of-Covid19 party, without masks or social distancing. I hope this isn't hubris. Still, Scotland, and indeed some parts of England, are close enough to do the same.

Lord Blagger said...

Far better. Let them go bust. End result rents will drop. New start ups will take over.

Anonymous said...

Oh shit. We may have to start making, building or growing things - and then selling them to foreigners.

Taxpayer said...

Which leads me to the conclusion that in order to keep businesses going why not write-off a big chunk anyway, before the businesses go under?

Have you been reading the Institute of Government's report on this issue.

See:https://www.instituteforgovernment.org.uk/sites/default/files/publications/bailout-business-after-coronavirus_0.pdf

They suggest the same at page 13

Unknown said...

The opposite to "benefit" should be "malefit", I think.

Don Cox

Suff said...

It’s not just this situation with COVID. I had a similar discussion with Blue Eyes many moons ago ( does anybody know how he’s doing? I miss his contributions). We were discussing the deindustrialisation of the north.The whole system of bankruptcy should be looked at and how we stop the cascade when a badly run ( or had its time) large business goes bust and takes the complete supply chain with it and eventually the total community in which it was set. Correct me if I’m wrong but aren’t the customs and excise first to the carcass. Wouldn’t it be better let the supply chain get paid the money they are owed first and give them time to adapt.
This will only be exacerbated by the fact that the big corporates have been continuously increasing their payment periods. As a contractor I’ve seen payment periods go from 30 days to six months ( I’ve never taken anything more the 30 days) just because they can

E-K said...

I think it was me who pissed him off.

I met him a couple of times. A very nice chap so if I did piss him off then it was me being a tosser.

Graeme said...

On 25 June, it was reported that 18% of rents had been received. Have there been any updates?

Anonymous said...

I see the last UK electrical steel maker shut down today. I only realised today the last zinc producer shut 12 years ago.

jim said...

I agree HMG will end up writing off the debt - like it or not. Probably better to do this up front - openly rather than screw a few to the wall and then face the inevitable and then relent.

As for restructuring - how? The setup was pretty shaky before Covid, Brexit would have brought about some restructuring over time but Covid took a wrecking ball to the economy and telescoped the whole process. Trouble is there was no process or plan, now we just sit among the wreckage.

Back to how. A lot of flim-flam businesses have gone but could re-flower provided the economic base recovers. That is the big problem - where is the big multi billion economic base load coming from? To cheer us up, everyone else is looking for some big multi billion businesses. A sellers market.

Left to itself the economy will grow again but probably more slowly than HMG would like, possibly a lot more slowly. Like an elderly couple receiving notice of dry rot in the basement HMG looks likely to be panicked into spending on cheap and nasty nostrums that don't work. I fear the D word will soon return to the political lexicon.

APL said...

"I don't think many of these dining options are going to do much damage to the overall economy, we did not need 3,000 variations on pasta and burgers to really push on in the 21st Century."

With as much respect as I can muster. That ain't your call.

"However, what is harder, notably for the retail sector but also SME's, is that the rent holidays and mortgage holidays are all going to come to an end in the next few months, along with the need to increase contribution to the furlough scheme."

Huh! People who invested in a bubble, property the archetypal ponzi UK economic model. The mechanism the UK government has used since Anthony Barber to gull the gullible into thinking they were being economically shrewd and to vote Tory.

We saw a 20% fall in property prices in 2008. When the market opens again, what's the betting we'll see double that? The Tories have, after all, destroyed at least a million small businesses.


"Which leads me to the conclusion that in order to keep businesses going why not write-off a big chunk anyway, before the businesses go under?"


How much of that fund went to actual businesses? Given our experience with Grenfell, and the 'hardship fund', they are still prosecuting fraudsters to this day, and that was just £5,000,000 how much of the government money (tax payers future prosperity) has been skimmed and sent to Nigeria or Pakistan?


EK: "We now know CV19 has a mortality rate of 0.1% and 90% of those are old and ill - look after them, let the rest of us take our chances."

I couldn't agree more. But the government did exactly the opposite, egged on by the British Domestic Terrorist operation AKA the BBC.

If there are going to be cuts, then they should fall first and foremost on the BBC.

Anonymous said...

E-K - "What makes England distinctively England ? Well. I'd say the pubs and the churches"

What makes England distinctively English (same for Scotland/Wales/Ireland) is the people. Change them, as governments have been doing for 60 years, and you change the country.

I was chatting to an Indian guy the other day, clever chap, but he was bemoaning how little money he got from Rishi's self employed scheme. Because he and his accountant were boosting expenses to and beyond what was reasonable, so low taxable profits on his catering business (and perhaps a lot of cash deals, he didn't say that mind), so little dosh from Rishi.

Multiply that by a few hundred thousand or million and you have a problem.

Matt said...

@ Anonymous

If you import a culture of dishonesty then the country will move in that direction. Plus the insatiable appetite of government for more money to spunk away means most will eventually want to shield their earning from the taxman. That's why they are so keen to crack down on IR35 - a warning shot to others not to come off PAYE.