Will Banks, Sudipto Karmakar and Danny Walker
This post is the first of a series of posts about the Covid-19 pandemic and its impact on business activity.
During the pandemic, UK businesses have received unprecedented levels of government support, set to total 9% of GDP. This has mainly been through the Coronavirus Job Retention Scheme (CJRS), under which 1 in 3 employees have been furloughed, and the government-guaranteed loan schemes that were used by 1 in 4 businesses. Despite the scale of this support, little has been said about which businesses received it. In this post we combine data on loan scheme and CJRS usage with a data set on the characteristics of businesses. We find that small, relatively old and sophisticated, labour-intensive businesses in the sectors most vulnerable to the impacts of the pandemic are most likely to have received both types of support.
What do we already know about the schemes?
HMRC has already published statistics on the CJRS and the British Business Bank has published statistics on the loan schemes. These statistics show that in absolute terms, businesses in the accommodation and food sector have been the biggest users of the CJRS. Construction businesses have been the biggest users of the Bounce Back Loan Scheme. Data also shows that the West Midlands has the most furloughed workers and London the most users of the BBLS. But this does not tell us how these interact. Our previous work explores what types of businesses have borrowed under the loan schemes, but some questions around furlough and the interaction between schemes remain unanswered. Has the West Midlands furloughed more workers because they have more accommodation and food businesses? What type of businesses have used both of the schemes?
What can we learn from business-level data?
We have collected the most up-to-date data on the individual businesses that have used the CJRS and the government loan schemes. From this, we find that around 45% of businesses which have used CJRS have also taken out a government loan, and 41% of loan-scheme users furloughed at least one employee from December 2020 to February 2021 (Figure 1). We match this scheme data to a large public data set with information on all limited companies in the UK, based on names and unique identifiers. We then run a series of probit regressions to isolate the effects of sector, region, leverage, age, firm size and capital intensity on a business’ probability of having used the CJRS and the loan schemes, following a similar methodology to this Staff Working Paper. We analyse the marginal effects of each business characteristic controlling for all of the others: giving us the estimated impact of a given characteristic on the probability of using the schemes.
Figure 1: Proportion of businesses using government support measures
What type of business is most likely to have used the support schemes?
A lot of the results of our regressions are intuitive. HMRC stats show that businesses in the accommodation and food sector are most likely to have used the CJRS, and this remains the case when controlling for other factors. That sector was hardest hit at the height of the pandemic. In fact, an accommodation and food business is almost 20 percentage points more likely to have furloughed employees than a manufacturing business (see Figure 2). There is similar sectoral variation in the businesses that have used both schemes. And interestingly, a business that has used the loan schemes is 20 percentage points more likely to have also furloughed employees.
Figure 2: Variation in scheme usage by sector
Reports have shown that there is limited regional variation in the use of the CJRS and the loan schemes, and we find that this holds even if you control for other characteristics. A business in the North East – the region with the highest usage once we control for other factors – is less than 5 percentage points more likely to have used CJRS than a similar business in Scotland, where usage is lowest.
A benefit of the data set we have used is that it provides details on business characteristics that haven’t been examined before in relation to CJRS: their assets, age, leverage and existing bank relationships are all new variables we’ve explored. For example, micro businesses with <£100,000 in assets are most likely to have used the schemes, while very large businesses the least likely (see Figure 3).
Figure 3: Variation in scheme usage by total assets
The balance sheet data that small businesses report publicly is limited, but we have used it to create a proxy measure of how ‘labour or capital intensive’ a business is. We do this based on their assets per employee – a high ratio indicates high capital intensity. The result here is striking (see Figure 4). Businesses in the lowest decile of assets per employee – ie highly labour-intensive businesses – are almost 20 percentage points more likely to have used the CJRS than the average firm, and almost 15 percentage points more likely to have used both CJRS and a government loan.
Figure 4: Variation in scheme usage by capital intensity
The final set of variables we examine relate to how well established businesses are, and their access to finance. We know that even before Covid, a large share of SMEs did not use any external finance. We find that the youngest (1st) quintile of companies are least likely to have used the schemes: compared to them, firms in the 4th age quintile are around 8 percentage points more likely to have used furlough, and 6 percentage points more likely to have used both schemes. Similarly, a firm which has an established bank relationship is 6 percentage points more likely to have used furlough and a government-guaranteed loan scheme than a firm which had not previously accessed bank finance.
What does this mean for the economy?
The furlough scheme is set to end in September 2021, and has cushioned the impact of changes in GDP on the UK labour market. The original government-guaranteed loan schemes closed in March 2021, and resulted in a tightening of credit conditions for the most vulnerable small and medium businesses. Our findings suggest that both types of support have been most likely to help small, relatively old and sophisticated, labour-intensive businesses in the sectors most vulnerable to the impacts of social distancing. We expect many of these businesses to have stopped using furlough since February 2021, and UK businesses have stronger cash positions than a year ago. But it’s possible that some of these businesses will continue to struggle from changes in demand patterns and the ongoing economic effects of Covid-19.
Will Banks works in the Banks Resilience Division, Sudipto Karmakar works in the Stress Testing Strategy Division and Danny Walker works in the Macro-financial Risks Division.
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