Is the government business support package enough? Can it work?
covid-19 news

Financial grants and government support

Government financial support schemes are being rolled out to help businesses during the Covid Crisis. The mechanics for claiming grants for the self-employed and small and medium-sized businesses are now broadly in place. This will help many individuals and some businesses to manage their cash flow through this period of lockdown.

As with any legislation that is rushed through with good intention, there are gaps in the government’s plans. Some are now being addressed with the Chancellor, Rishi Sunak, promising support for the charity sector and larger businesses, but many small and medium-sized businesses are missing out.

Who are they and what can we do to help?

Financial support for small and medium-sized businesses – what’s missing and who will miss out?

We are already seeing businesses fold. With the Office for Budget Responsibility forecasting a 35% drop in GDP this spring and a further 2m people becoming unemployed, there will be many more. Some were inevitable, but it will be a shame if viable and prospering businesses fail.

There are 5.9m small and medium-sized businesses in the UK. We know collectively they contribute significantly to the economy and support has been announced by the Chancellor to keep the 3.6m self-employed people in the UK afloat. However, many business owners who we have spoken to over the weeks since lockdown won’t benefit from the help being offered: start-ups not yet trading or at break-even; those who pay themselves partly through PAYE and take the rest of their earnings in dividends; those excluded from business grants or not able to benefit from them because their premises or serviced offices have a rateable value over £51k, which is often the case for businesses in city centres.

And what’s in place for the 1.4m businesses registered as employers? How many of those will fall through the gaps when it comes to receiving government support? There are small business grants for those with premises in retail, hospitality and leisure, but other sectors who have been impacted just as hard aren’t covered including vets, dentists, doctors, osteopaths and chiropractors.

For many businesses selling non-essential products and services, trade ceased almost overnight when the Prime Minister announced lockdown on 23rd March. Employers can furlough staff, but still have other fixed overheads to cover and the future cost of employees’ accrued holiday. In fact, it is a double whammy for some employers – accrued holiday could become significant and when taken will put further pressure on the business when they reopen. If this happens, then additional staff will need to be paid to provide cover or business owners will have to work additional hours or not take holiday themselves.

For other businesses, employers face the dilemma of whether to keep trading. Some have seen revenues drop significantly but they cannot furlough staff in proportion to lost revenue because those such as agencies and businesses with production lines need to retain a full set of different skill bases in order to deliver their services to their remaining clients. There is no option to furlough employees on a part-time basis. Employers in this situation may be financially better off if they stop trading, furlough all staff (including themselves) and take a risk on making a comeback when support is withdrawn. However, with larger competitors winning market share in their absence, a comeback may be very difficult if not impossible to achieve.

Then there are the business owners with money tied up in assets that are no longer generating a return. How many business owners fall into this category? When financial support is phased out and furloughed staff return, will there be a viable business for them to go back to?

Cash flow is imperative

Cash flow is critical to the survival of a business and yet very few businesses have so far secured loans under the Coronavirus Business Interruption Loan Scheme (CBILS). Following a public outcry on the lack of accessibility to these loans, the government has put pressure on banks to ease their lending requirements and process applications. UK Finance announced on 15th April that £1.1bn has been lent to 6020 businesses, which is an increase of £700m in the last week.

The importance of community support for business owners

No one knows how long this situation will last and now, more than ever, it is difficult to plan for macro-economic factors and make prudent business decisions.

Even in “normal circumstances” business owners often feel alone, especially those who do not have a business partner or an external support network. These business owners are even harder hit during these times of enforced isolation.

There will be business owners around the world thinking ‘Why did I bother?’ because everything they have worked so hard for is rapidly disappearing and their businesses – for multiple reasons – may not be salvageable.

It will be particularly sad to see businesses that have had a positive social impact disappear.

Many businesses are not recognised for what they contribute because they do so without being labelled a social enterprise, community interest group or not-for-profit. It will be heart-breaking for the employees as well as the owners of such businesses – especially those who, together, have worked hard, paid their taxes and not flouted rules and regulations. Despite what the media might have you believe it is not easy to build a business. If it were, then every start-up would be a success.

These businesses need our moral support. It is easy to show appreciation – a timely and sincere thank you goes a long way to boost the morale of the owners and employees of such businesses.

In addition, they need some form of commitment or support – ideally from clients who are in position to place long term orders or support through a campaign like Crowdfunder’s Pay It Forward.

Are the government measures enough and are they working?

People should know…we won’t be able to protect every job or every business.

Rishi Sunak
Chancellor of the Exchequer

When financial support is limited, there are difficult decisions to make about how best to distribute it. Where do you draw the line and what criteria will you use? In addition, it needs to be easy to implement, access and robust enough against misuse. Getting this ‘right’ is not a simple task. Consequently, some individuals and businesses are not receiving the support that many of us believe they deserve, whilst others appear to be benefitting when we believe they don’t need or deserve it.

What is ‘right’ or ‘best’ is swayed by people’s perception.

The Tesco example

Many people reacted in disgust to the news that Tesco is claiming business rate relief (on its smaller premises), when everyone knows that sales are soaring. However, there is another side to this story. The rate relief will only partially offset the extra costs incurred to supply its customers and protect its key workers. On the other hand, they are still going to pay out dividends. Is that right or wrong? Without an appreciation of the bigger picture – who will be affected if those dividends are not paid out and in turn what impact that may have on the wider economy – we can only form a subjective opinion. Tesco has some 220,000 small investors on its register with a holding of fewer than 5,000 shares. It is likely that some of those shareholders rely on their dividends as part of their pension income. Other shares will be held by pension fund companies for the future benefit of individuals. People might think and judge differently if they were aware of the bigger picture.

The small business example

On a more local level, how would you feel about a small business that delivers fruit and vegetable boxes putting its prices up by 25%? Is it fair that these businesses might receive a grant? If their wholesale prices have increased or if their costs have increased so that they can employ more staff, continue to pay those that are self-isolating or reward their keyworkers during stressful times, then they may be making no additional margin.

Working together to support our business community

There are those who will gain from the new support measures being put in place, whilst others may not be catered for at all. It is easy to become angry when you think something is not fair, but blame will not get us out of this. The perfect system does not exist, but together we can find ways to support and include those who have been left out.

For the economy to recover, everyone needs to think beyond their own situation. Without knowing the context and potential impact, we should not judge nor fall into a culture of blame but ask questions, hold people to account and work together towards the ‘best’ solution.

When everyone is facing bizarrely different realities, it can be easy to forget that we need to work together. This means being considerate and respectful: observe the instructions to  ‘Stay home – Protect the NHS – Save lives’; show gratitude by joining in ‘Clap for our carers’. It also means looking after ourselves – both physically and mentally; helping those in need and, if you are in a financial position to do so, participating in keeping the economy going.

The economy needs us to support the organisations and businesses we value (both large and small) by recognising and recommending them, and by trading with them during lockdown or pledging to trade with them when lockdown measures are removed.

We are all in this together – let’s get out of it together.

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