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Updated: 16th March 2020
Published: 9th March 2020

The spread of Covid-19 shows no sign of abating, with numbers affected continuing to grow on a daily basis. Global infection rates now top 100,000, with the death toll edging close to the 4,000 mark. What began as a problem isolated to China has now spread across the globe, with infection rates in Europe increasing by the day.

Stock markets are reacting to the turmoil. The FTSE has suffered considerable falls over recent days, with an 8.5% plunge on Monday representing the largest one-day fall since the last major financial crisis in 2008.

However, it is not just coronavirus that has stock markets feeling nervous. The emergence of an oil price war involving Saudi Arabia, Russia, and the US over the weekend has exacerbated issues, with a massive 30% drop in the price of oil; BP have lost 27% and Royal Dutch Shell are down 20%. Panic selling from those attempting to cover their losses in oil shares has contributed heavily to the losses being felt today.

An oil price war coupled with the coronavirus crisis, is a lethal combination for the world’s stock markets, and has further compounded already significant losses suffered over the last fortnight. With investor confidence at a decade low, there are real fears that Europe’s economy could be headed into recession.

Is self-isolation on the cards?

Italy, the worst affected country in Europe, took the decision over the weekend to quarantine 16 million of its residents, with schools, gyms, cinemas, and museums ordered to close in an attempt to halt the devastating spread of the virus. Whether similar containment measures could be implemented in the UK will largely depend on the rate of how the virus continues to spread over the coming days and weeks.

While this may be necessary for public health, compulsory self-isolation or other social-distancing strategies could have a disastrous impact on the country’s economy. Individuals’ spending power will be reduced if they are forced to stay at home, while many businesses could see their takings fall dramatically if customers are unable to socialise as normal - that is if they are able to open their doors at all. The self-employed, who are not entitled to sick pay, are likely to be hit particularly hard should they fall ill or be ordered to self-isolate at home.

Although the UK has so far been spared the infection rates being reported in Italy, with the economy increasingly a global one, countless businesses across the country have already been negatively affected through supply chain disruption with countless others braced for challenging times ahead.

Like the virus itself, the economic impact will be difficult to contain and will cut across many sectors affecting businesses both big and small.

Supply chain uncertainty

One of the main issues is that there is considerable uncertainty and an overarching sense of confusion which is preventing businesses from being able to plan ahead. No one knows for sure how long the crisis will last, nor whether we are currently experiencing the worst of it or whether more is yet to come.

With many factories in China closed since late January, supply chains have been decimated, leaving those companies relying on components and finished stock from these manufacturers having to use up items already held in stock with no guarantee when the next shipment of items will be ready.

Unfortunately, when it comes to supply chains getting back to pre-coronavirus levels, it is not as simple as factories restarting production. Supply chains could take several months to be sufficiently replenished meaning that even once the worst of the medical threat from the virus has passed, the economic hangover could last much longer.

"The FTSE has suffered considerable falls over recent days, with an 8.5% plunge on Monday representing the largest one-day fall since the last major financial crisis in 2008."

Could the budget give businesses reassurance?

Amidst the uncertainty, Chancellor, Rishi Sunak, looks poised to announce a series of emergency measures to boost spending and instil confidence during these challenging times as part of the upcoming budget on Wednesday. It is likely more general reforms will be shelved as securing the immediate security of businesses and the wider economy in the wake of the coronavirus outbreak becomes a priority.

The contents of the budget are not yet known, however, it is expected that measures will be announced to support the already-stretched NHS cope with a potential influx of patients, as well as help for those who do not qualify for statutory sick pay.

There is likely to be a stimulus package in order to boost the economy and protect businesses from the expected financial shock. Quantitative easing coupled with a slash to interest rates was used during the financial crisis a decade ago, but whether this would be the right action to take now is questionable.

With interest rates already low, there is a limited amount of stimulus an immediate rate cut could provide, while quantitative easing may not be an appropriate solution to something which could well be a relatively short-term issue.

Instead a lifeline could be thrown to struggling businesses by way of a series of short-term measures such as access to bailout funds or alternative rescue packages. This may include Time to Pay (TTP) agreements - which allow companies an extended period to bring their affairs with HMRC up to date - being made more widely available in an attempt to provide immediate relief for those experiencing acute cash flow problems.

How Time to Pay could help

While TTP arrangements currently exist, the criteria for qualifying for one can be strict and many struggling companies fail to meet HMRC’s requirements. However, with the threat of more businesses than usual being dragged into financial distress through an economic downturn, the relaxation of this qualification criteria could be key to helping businesses manage their cash flow and ride out the next few months; a time where for many, the only certainty is that it is set to be extremely challenging.

The problem with so-called ‘black swan’ events such as this is that businesses have no prior warning, and therefore no time to formulate a contingency plan to cushion the blow. The offer of a TTP arrangement could give companies who find themselves caught up in the financial fallout vital breathing space to regroup and organise their cash flow if it has taken an unexpected hit.

Entering into a formal agreement to allow companies to spread their HMRC obligations over a longer period could go a long way to keeping the economy flowing and reducing the threat of wide-spread company insolvency.

For some the coronavirus crisis could be directly responsible for the demise of their business, for others the knock-on effect could be the final nail in the coffin for a company already under pressure. Regardless, the government will be under real pressure this Wednesday to not only prepare the country, but to also protect the 5.8 million small businesses who are the lifeblood of the economy, for challenging times ahead.

If your business is experiencing a downturn due to the escalating coronavirus crisis, call our dedicated helpline on 0333 009 6851 for immediate help and advice on navigating the situation including expert guidance on arranging a Time to Pay agreement.

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