Most UK businesses given council Covid grants would have survived anyway

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Three-quarters of UK businesses that received grants from local authorities to help them through the Covid-19 pandemic would have survived without the £23bn of government support, according to an official study.

The report published on Tuesday by the Department for Business and Trade found that the grant programmes had met their aim of “providing a rapid response to the cash flow issues” caused for businesses by Covid-19 restrictions and “preventing a substantial number of business failures and branch closures”.

But it concluded that “a relatively high share of the businesses supported would have been likely to survive without cash flow support”, meaning that the same result may have been achievable at a lower cost to the taxpayer.

The findings will contribute to the contested legacy of the government’s Covid support schemes, which were delivered rapidly at a time of lockdowns, disruption and uncertainty but at huge cost to the public purse, with the Treasury now confronting a much higher debt burden.

Tuesday’s report focused on eight grant schemes for businesses rolled out between 2020 and 2022 and administered through local authorities, including the Small Business Grant Fund and the Retail, Hospitality and Leisure Grant Fund.

The schemes were one of the largest interventions to protect the economy from the damage caused by Covid-19 restrictions, handing an estimated £23bn to 1.4mn businesses. The grants are estimated to have reached more than one-quarter of English businesses.

The report, prepared by market researcher Ipsos UK, consultancy Steer Economic Development and economist George Barrett, noted that many firms receiving grants also made use of parallel schemes, which were not administered through local authorities.

These alternative programmes may have limited the need for further public subsidy through local authority grants, it said. Alternative supports included loan schemes where businesses were able to borrow from banks, backed by a taxpayer guarantee if they failed to repay.

The report said a lack of targeting of the funds towards businesses and sectors most vulnerable to disruption, particularly in the early stages of the pandemic, had contributed to the high cost of the scheme.

“Analysis of the balance sheets of firms receiving grants suggested that only a quarter had financial reserves that would not have allowed them to absorb the costs associated with short-term disruptions in their ability to trade,” the report said.

While the grants may not have been efficiently targeted, the business department has estimated that £1.1bn, or just less than 5 per cent, of payments were irregular, with 83 per cent of these due to errors rather than fraud.

However, the report concluded that the speed of the grants’ rollout was a “significant achievement” given the operational challenges in getting the programme up and running. It found that the funds had “successfully reached the smallest businesses that were expected to face the most significant disruption”, adding that a significant support programme had probably been needed to underpin broader economic confidence.

Levels of “day one preparedness” for the rollout of massive grant programmes were “relatively limited” and spending time creating new systems for rolling out the support would have caused delays, the report found.

Overall, the grants were estimated to have saved about 400,000 jobs, before allowing for potential reallocation of staff between branches, including 100,000 at businesses that might otherwise not have survived the pandemic.

The support was also estimated to have helped keep between 111,000 and 430,000 people in employment between 2020 and 2022 and “may have helped mitigate any ‘scarring’ effects caused by the pandemic”, the report said.