Widescale job losses in the restaurant and bar industry will plunge the UK economy into a deep recession, BDO partner Peter Hemington has told MCA.

The corporate advisor said loan guarantees were not enough, and called on the government to compensate businesses for loss of earnings during the crisis, and enable them to keep staff on the payroll.

As things stand, there is very little equity value left in hospitality businesses, as seen in the dramatic loss of value in share prices, which he said would have a knock-on impact on pensions and savings, creating a “very negative impact on everyone’s lives”.

The comments come as a straw poll organised by Street Feast founder Jonathan Downey suggested as many as a million staff had already been laid off as a result of the crisis.

Hemington, who heads up leisure M&A at BDO, told MCA: “Unless you want to wipe out the equity of all the businesses in the leisure sector, which is a real possibility, and unless you want to accept the impact that will have on people’s pensions and savings, where the bulk of equity value sits, loan guarantees don’t cut it.”

He said the government needed to compensate businesses for loss of profits arising out of covid-19.

“There’s no point in borrowing a load of money, and then in six months’ time you have loads of debt on the balance sheet. The government needs to compensate for loss of business, and step in as an insurer of last resort, if insurance schemes don’t cover them.”

He said the compensation may have to go so far as directly funding the industry’s workforce.

“Otherwise, if all those employees get turned on the street, the contagion into a deep recession will happen very quickly, and that is something the government should avoid”, he said.

Hemington added that though it was impossible to predict how things would play out, there was currently little value left in the sector at present.

“A dramatic fall in share prices is the right response by the market,” he said.

“If everyone closes for two or three months, operators might have cash reserves, but they’re going to have to borrow, and by and large that means the equity value is going to be wiped out – unless the government steps in, or unless the company’s insurance policies are triggered by this.

“There needs to insurance or compensation, and that needs to be led by the government.”

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