Lockdown Economy United Kingdom

The magnitude of economic recession caused by the COVID-19 pandemic is unprecedented in the United Kingdom. According to the World Bank, the national GDP growth fell by 9.8% in 2020, an all-time low since the record began in 1961 [1]. 

The main factor contributing to this economic shock was the lockdown restrictions in the UK. The national government implemented a set of relatively strict rules in the UK compared to other European countries. People were only permitted to leave their homes for the most essential needs, and almost all companies were forced to move to remote working. Subsequently, the national GDP fell by 25% in April 2020 compared to two months earlier in February [2]. 

The impact of the pandemic is especially severe on small businesses. According to Goldman Sachs’s report, two-thirds of small businesses saw their revenues decrease [3]. Nevertheless, the UK government has been very supportive throughout the crisis especially in terms of providing financial support. Seventy-five percent (75%) of the small businesses could access the job furlough scheme and 98% of them (including the interviewees that received it) said it had a positive impact on their businesses.  

This article will explore three fundamental challenges for small businesses in the UK, caused by the pandemic, and originally discovered through the Lockdown Economy interviews with eleven micro and small business owners. For each of the challenges, a call of action is issued for national, government, and international organizations to provide assistance. By managing these challenges decisively and responsively, the governments could support the MSMEs to survive this crisis and promote economic growth in the long term.

Loss of customers and deals due to lockdowns

Among all the interviews conducted by Think Tank AlterContacts, the loss of customers was mentioned the most by the entrepreneurs. Due to the sudden announcement of the lockdown, businesses were left with little time to react. Both financial and emotional difficulties were posed on small businesses owners to make decisions in a state of great uncertainty. 

Under this climate, many business deals were postponed. Acquiring new customers became more difficult. As a result, the UK produced 9.9% fewer goods and services in 2020 than in the previous year. That became far bigger than any contraction since the early 20th century. According to a McKinsey report, 28% of the SMEs were concerned about their ability to sustain their supply chains and 36% were expecting to postpone their growth projects [4]. 

It is worth mentioning that there are differences in the impact across different sectors, and that the industry matters more than the size of the businesses. Industries such as transportation and hospitality were severely impacted while others such as finance and insurance were less affected [5]. Business consulting which most of our interviewees are in was also impacted, as a large proportion of their clients focused on internal development rather than seeking external help.

Call to Action: Connect small business owners to create a networking effect and build public confidence

As mentioned previously, the UK government has been putting a lot of effort into supporting small businesses financially. A large amount of public funds has been spent on developing financial assistance schemes such as tax-payment deferrals, furlough payments, business-rate relief, low-interest loans, eviction protection, and more. These programs have been effectively helping businesses to gain more cash flow and survive the financial crisis. 

Although the financial assistance has been greatly appreciated by the small businesses, the UK government’s budget deficit has also reached a peacetime record in 2020/21. Therefore, to provide further non-financial support to accelerate the recovery of the economy, the government could potentially host different networking events or international conferences to link the SME owners together. In this way, they could exchange information and tips to solve their business problems and enable growth in the future. Furthermore, this would also be a great opportunity for the companies to increase their brand awareness and acquire potential clients globally.

On the other hand, the government should also aim to ensure they are planning in advance and leaving enough notice period for businesses to prepare. A large proportion of the deals lost was due to businesses not having enough time to react and they were forced to cut costs. Whenever a change in regulations occurs, the government should be able to provide mature schemes to support those in need and build public confidence. Nevertheless, with previous experience in pandemic-related measures, the UK government should be more prepared if any other changes in situations are due to come. 

Businesses facing technical difficulties when moving into the digital world

The pandemic has had a significant impact on the way of working for businesses across the UK. At the beginning of the pandemic, almost all companies adopted the work-from-home method with the exception of essential workers. Even now with the restrictions lifted, many companies are still using a hybrid method combining working from home and in the office.

While big corporations with established IT systems had a smoother transition from working in the office to virtual collaboration, many small businesses simply needed more time to adapt and were less resilient to technological difficulties. 

On the other hand, the inadequate provision of public infrastructure can add further difficulties to this digital transformation. According to animation firm Salamandra, the power failures in Eaton, where their office is based, have caused losses of data and huge operational problems for their business [14].

Finally, the gap in digital transformation has made interactions and collaborations among businesses challenging. Frictions are caused in meetings and transactions when one or both parties are having technical issues. In addition, building relationships with clients and suppliers became less personal. This could be detrimental for small businesses especially at an early stage where they are trying to build their network. 

Call to Action: Provide educational programs for technical support while enhancing public infrastructure

While the British government has provided ample support for mental health and published various guidelines on how to prevent the spread of COVID-19, the technology support is disproportionately low. The government currently has a “Get help with technology” program but this is mainly aimed at remote learning and education [6].

The UK government could therefore consider offering educational webinars or programs to provide technical support for small businesses. Organizations such as the Local Government Association already offer similar programs at local councils [7]. The UK government could consider partnering with them to create a bigger influence on the businesses. In addition to that, the government could also post tips and guidance on flexible working on their public communication platforms. 

In terms of internet access, the UK has already invested £5 billion into ensuring everyone can benefit from gigabit-capable broadband [8]. For electricity, the UK is undergoing a significant transformation to greener energy at the moment: more than two-thirds of the existing power stations are expected to close down and new clean energy plants will be built [9]. While this is a great environmental initiative and a huge opportunity, the government will need to make sure that the transition is smooth and does not impact the existing power supply. 

New businesses struggle to find office spaces while others left office space unused

The health and safety measures implemented for the pandemic, and lockdown restrictions certainly promoted flexible working for most companies. Both the office space market and the way we occupy office space have been undergoing profound changes. 

For some of the tenants, the office buildings they rented became a financial burden as they adapted to remote working. According to a report published by the Royal Institution of Chartered Surveyors [10], the demand for offices in the UK fell by 63.36%, the highest compared to the average in other regions in the world. Although the UK government provided several rent relief packages before, as they gradually expired, the economic costs of renting these commercial spaces accumulated [11].

However, there are other new businesses that arose from the pandemic, who are seeking to use office space to increase collaboration and spark new ideas in the initial stages. According to one of the founders of local business Minimal [15], there were plenty of government schemes supporting start-ups in finding office spaces prior to the pandemic, but most of them were unfortunately closed or postponed after the change in situations. She further added that due to the difficulty of finding an office space, they sometimes would need to go to university campuses to have meetings with employees.

Call to Action: Methods to promote flexible workspace

A CBRE report reveals that, although the change from cellular offices to more open-plan layouts has decreased the office space per employee [12], the overall occupied office space has been increasing over the past three decades.

Therefore, the key here to connect both the businesses that have unused workspaces and others who are seeking to procure small office space is flexible workspaces. By enabling more flexible leasing and shared workspace, more unused office space will be utilized by those in need and this can also be adjusted according to the size of the company. 

At the moment, the UK has a flexible working task force to support employers to work in flexible hours outside of the traditional 9 to 5 [13]. Enabling flexible working can help improve workplace equality and increase productivity. Nevertheless, it does not solve the disparity in the commercial property market. Therefore, more programs and schemes should be implemented to promote flexible workplaces and support those corporations that aim to do so. As long-term lease commercial property is still dominant in the market, the government should aim to increase the share of the flexible workspace as it is currently only 6% in the UK.

Finally, as the pandemic restrictions are gradually easing, the UK government could also consider reinitiating the schemes to support start-ups and small businesses in finding their office space. In addition, there could also be tailored flexible workspace plans specifically targeting small businesses. 

CONCLUSION

The United Kingdom is gradually recovering from the economic shock that the COVID-19 pandemic has caused. Nevertheless, the road to complete recovery is still long, especially with the resource shortage it is facing at the moment. With the help from the government, small businesses will stay strong and continue to grow, contributing to building a promising future for the country. 

Written by Yvone Wo, a  United Nations online volunteer

Edited by Nelisa Rianne

Editor-in-Chief - Julia Skupchenko

REFERENCES

1 - The World Bank, GDP growth (annual %). Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG

2 - UK Parliament, Coronavirus: Economic impact.  Available at: https://commonslibrary.parliament.uk/research-briefings/cbp-8866/

3 - Goldman Sachs, Small Business Britain: The Impact of COVID-19 To-Date. Available at: https://www.goldmansachs.com/citizenship/10000-small-businesses/UK/infographics/small-business-britain/

4 - McKinsey, How the COVID-19 crisis is affecting UK small and medium-size enterprises. Available at: https://www.mckinsey.com/industries/public-and-social-sector/our-insights/how-the-covid-19-crisis-is-affecting-uk-small-and-medium-size-enterprises

5 - Office for national statistics, The impact of the coronavirus so far: the industries that struggled or recovered.  Available at: https://www.ons.gov.uk/economy/economicoutputandproductivity/output/articles/theimpactofthecoronavirussofartheindustriesthatstruggledorrecovered/2020-12-09

6 - Gov.UK, Get help with technology for remote education. Available at: https://www.gov.uk/guidance/get-help-with-technology-for-remote-education

7 - Local Government Association, Care Technology Support Programme. Available at: https://www.local.gov.uk/our-support/our-improvement-offer/care-and-health-improvement/informatics/care-technology-support

8 - Gov. UK, Building Digital UK. Available at: https://www.gov.uk/guidance/building-digital-uk

9 - National Infrastructure Commision, Smart Power. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/505218/IC_Energy_Report_web.pdf

10 - RICS, Work shift: how will COVID-19 affect office space? Available at: https://ww3.rics.org/uk/en/modus/built-environment/commercial-real-estate/work-shift--how-will-covid-19-affect-office-space-.html

11 - The Instant Group, Large flexible workspaces are in short supply as more corporate clients put value on agility.  Available at: https://www.theinstantgroup.com/en-gb/breakthrough-insights/research-articles/large-flexible-workspaces-are-in-short-supply/

12 - CBRE, UK Will Working from Home Change the Central London Office Market? March 2021. Available at: https://www.cbre.co.uk/research-and-reports/UK-Will-Working-from-Home-Change-the-Central-London-Office-Market-March-2021

13 - Gov. UK, Flexible working.  Available at: https://www.gov.uk/flexible-working

14 - Think Tank AlterContacts, Lockdown Economy UK in Animation for Businesses with Christine MacKay. Available at: https://youtu.be/24_POZgiMEQ

15 - Think Tank AlterContacts, Lockdown Economy UK in a Sustainable Fashion Platform with Luke McAllister and Maria Vasileva. Available at: https://youtu.be/15EeOinZKOI