Three out of every four major UK-based businesses are planning to cut jobs as a result of Covid-19, according to a New Statesman survey that sheds new light on the potentially devastating economic consequences of the crisis.
Commissioned for a special issue of the New Statesman, “Anatomy of a Crisis”, that will be published this week, the research reveals that 82 per cent of UK-based business leaders expect that the economic impact of Covid-19 will be more severe than the global financial crisis of 2007-8 and that 74 per cent predict a prolonged recession.
The survey of more than 500 industry leaders, including chief executives, directors and vice presidents, shows that the business community is sceptical of predictions, made by the Bank of England and ministers, that the UK will experience a swift resurgence in economic activity after the crisis passes; just 26 per cent predict a V-shaped recovery.
Majority of businesses are sceptical about an immediate economic recovery
NS Media Group’s chief economist, Glenn Barklie, described the findings as “startling”. “This is hugely pessimistic and should lead to a reassessment of company and government strategies,” he told the New Statesman. “It is important to note which companies and sectors are more recession-proof than others and increase the skill-base in these types of industries.”
According to the survey, 89 per cent of business leaders expect to see revenue declines, 66 per cent expect it will take at least two years for their business to recover and 73 per cent expect to cut jobs, prompting fears that most businesses will be focused on survival, rather than growth, in the coming years.
The overwhelming majority of businesses do not expect to recover from the coronavirus crisis within the next year
The likelihood of an organisation cutting jobs appears to rise in line with its size. One in four of our respondents work for organisations with revenues of more than $1bn a year, and in that cohort, 89 per cent expect to cut jobs. Around half of respondents (47 per cent) work for firms with revenues of $250m to $1bn, a group in which 79 per cent expect to issue redundancies. Of the smallest businesses represented, which make up 28 per cent of respondents and have revenues of $10m to $250m a year, only 48 per cent expect to make job cuts. Nearly two in five (38 per cent) of the organisations that are planning to make cuts intend to make more than 20 per cent of their staff redundant.
Most organisations surveyed report they are cutting jobs
One of the worst hit sectors is tourism, leisure and hospitality, in which 86 per cent of respondents indicated their organisations were planning to reduce the size of their organisations; some 39 per cent intend to cut 21-30 per cent of roles. By contrast, just 32 per cent of organisations in the financial and professional services sector are planning to cut jobs. Those working in technology, media and telecoms (TMT) are also more optimistic, with fewer than half (47 per cent) expecting to see cuts. They are also the two sectors that are expecting to see the lowest rates of revenue decline. While 98 per cent of respondents working in the tourism, leisure and hospitality sector expect to see revenues fall, only 71 per cent of those working in TMT do.
“These job cuts will lead to an increased unemployment rate, and more people claiming unemployment benefit,” said Barklie. “Has the government’s furlough scheme actually worked, or just prolonged the inevitable?” More than nine million workers have been placed on the scheme, which has been extended until October and is paying out over £10bn in wage subsidies a month.
Near two in five businesses report intentions to cut at least one in five of their worker total
Two thirds of respondents said the government’s financial support had been critical to the survival of their business. Yet 25 per cent expect to see a double-dip recession, or a W-shaped recovery. If the economy does take a second hit, possibly triggered by a second wave, some economists fear that the government won’t be willing or able to reintroduce the furlough scheme, which could prompt a surge in bankruptcies.
The survey also sheds light on how the UK is perceived relative to other leading economies. Some 87 per cent of respondents expect Germany to outperform the UK, while 86 per cent expect Japan to do so and 81 per cent think China will. Meanwhile, only 26 per cent think France will perform better. Some 20 per cent said the same of India and 15 per cent said the same of the US. Just 6 per cent expect Italy to outperform the UK. The survey was split evenly between respondents working for companies with UK headquarters and multinationals with significant operations in the UK.
Barklie point out that it is the “tech-savvy nations of China, Japan and Germany” that are most widely expected to outperform the UK. “Whereas those expected to perform worse than the UK were India, France and Italy – three economies less renowned for their ICT capabilities. This would reaffirm the point that technology is going to be a key driver to get economies out of any recession period. Additionally, these economies have large domestic markets and are export-orientated.”
We also asked the business community how many people they estimate will be able to work together safely in person while following the government’s social distancing guidelines. Some 60 per cent of respondents said that 30 per cent or fewer of their staff would be able to do so. Although the government has since confirmed that it plans to replace the two-metre rule with a “one-metre-plus” rule, Barklie warned that the low number of employees who can work together safely may “tie in with the gloomy outlook companies are reporting. If this figure was higher, would output and revenues be expected to be higher? I would assume so.”
Read more from this week’s special issue: “Anatomy of a Crisis: How the government failed us over coronavirus”