Despite the pain in the hospitality and retail sectors, company insolvencies in England and Wales fell by a fifth between 2019 and 2020. While overall business profits slipped in 2020, the impact was far less severe than in the financial crisis of 2008 or the early-1990s recession. And British businesses have never held so much cash.
Surging corporate bank deposits do not usually accompany a recession. According to an analysis by the Resolution Foundation, a think-tank, the past four British recessions have seen corporate cash holdings shrink by an inflation-adjusted average of £40bn. But over the last nine months of 2020 firms added almost £120bn to their bank balances, taking the total up to over 30% ofThe uneven recession is part of the explanation.
The government has absorbed much of the cost of the lost output. Aside from the almost £60bn it has spent picking up 80% of the wage bill for furloughed workers through the Coronavirus Job Retention Scheme, it has given firms direct grants and tax cuts worth over £25bn and £85bn of cheap, state-backed loans, while deferring over £2bn of tax payments., a professional-services firm, says his deal-making advisory practice has rarely been so busy.
But if larger firms have been building piles of cash, smaller firms are feeling less flush, according to the. They are twice as likely to have no reserves than larger ones. Tony Danker, head of the Confederation of British Industry, a trade body, fears that small firms that have reserves will use them up quickly. The first repayments on government-backed loans are due in May and the economic outlook remains highly uncertain.
Amid a bonanza of dealmaking and a massive corporate cash mountain there are large clusters of firms that will need more support if a sharp rise in unemployment is to be avoided as government schemes wind down. The challenge for the Treasury in the budget will be to find a way to target help where it is required as Britain’s economy begins to reopen.