April 7, 2020 / 11:04 PM / 2 months ago

Few UK firms getting coronavirus funds as wider costs mount

LONDON (Reuters) - Only a small fraction of British companies have successfully accessed financial help from the government to withstand the economic fallout from the coronavirus outbreak, a survey showed on Wednesday.

A helicopter is seen as the Pink Supermoon rises over Canary Wharf in an astronomical event that occurs when the moon is closest to the Earth in its orbit, making it appear much larger and brighter than usual, in London, Britain, April 7, 2020. REUTERS/Dylan Martinez

The British Chambers of Commerce (BCC) said 1% of companies had received funds from the government’s Coronavirus Business Interruption Loan Scheme, while 8% said their application had been unsuccessful.

Another 7% received government grants for small businesses, but double that proportion applied unsuccessfully.

Although some of the survey was conducted before the government relaxed rules to allow more businesses to apply for help, the figures make unpromising reading for the future of British companies.

Gauges of business activity have already slumped to record low levels and economists expect Britain’s economy will contract by at least 10% in the second quarter.

“Our latest data shows that many businesses face a cliff-edge scenario, either at the end of this month or over the course of the next quarter,” BCC Director General Adam Marshall said.

The companies that had so far failed to access government finance cited complexity and slow response times.

The influential Treasury Committee of lawmakers said urgent action was needed as some people had been “left behind” by the government’s measure.

“Significant progress has been made and millions of people will be helped by the Government’s schemes, but some people have slipped through the net,” Treasury Committee chair Mel Stride said.

In reaction to the BCC survey, the finance ministry said in a statement: “More than 77,000 small businesses have already benefited from almost 1 billion pounds of cash grants while almost 1,000 businesses have had more than £90 million of loans approved over the last two weeks.”

The BCC said 16% of companies had less than a month’s worth of cash reserves left, while 6% had run out entirely.

The cost to the government of supporting businesses, especially to keep staff on payroll, is also mounting rapidly.

Britain has pledged over 60 billion pounds ($73 billion) in public spending and tax cuts to try to shield its economy from a deep recession and the final bill could be much higher.

The BCC said 37% of firms it surveyed intended to put more than three quarters of their staff on leave, up from 32% a week earlier, taking advantage of a government scheme that will pay 80% of workers’ salaries up to a cap of 2,500 pounds a month.

This would cost 30-40 billion pounds just for the initial three months that the scheme has been guaranteed for, the Resolution Foundation think tank estimated.

“The economic and social cost of mass unemployment in the absence of such a scheme would be far, far greater,” the think tank’s chief executive, Torsten Bell, said.

Speaking to members of parliament, Britain’s top tax official, Jim Harra, who is in charge of rolling out the scheme, said it was “quite uncertain” what the take-up would be.

Britain’s Debt Management Office has already stepped up bond issuance plans to finance greater borrowing, and will sell a record 45 billion pounds of debt this month.

Investors are keen to finance this borrowing for now, with record demand at an auction on Wednesday. They are confident in the knowledge the Bank of England will buy much of the debt from them via its 200 billion pounds quantitative easing programme.

Editing by Stephen Addison and Timothy Heritage

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