Sunak must do more to help lockdown-battered businesses

Has Rishi Sunak done enough to prevent an explosion in insolvencies?  

The chancellor had to act quickly after Boris Johnson belatedly imposed the lockdown we are now in. It was swiftly followed by the announcement of grants worth up to £9,000 – for the retail, hospitality and leisure sector – which could benefit as many as 600,000 businesses and are linked to property.

They will cost £4bn. In addition, a £594m discretionary fund to support other firms hit by the coronavirus was announced.

But here are some other numbers that need taking into consideration. The Bank of England has projected that British businesses face a collective £180bn cash shortfall during the current financial year, which ends in April. They have reserves of £90bn. This means they will be scrambling to find a way to bridge what amounts to a financial chasm.

Clearly the new measures will help with that. Organisations such as the CBI and the Institute of Directors have welcomed them as far as they go. Trouble is, if large numbers of the recipients tip over the money will have been wasted.

Mr Sunak needs to do more to prevent that from happening.

The various vaccines that have been developed have justifiably generated some optimism. The state of play as regards public health is indeed grim, every bit as bad as when the first lockdown was imposed last March. But there is now a light at the end of the tunnel. It’s just a very long one. The impact on demand as a result of the latest restrictions will will be enormous, further wounding businesses already reeling from the stop start nature of restrictions.  

The root cause of this bitter harvest is a political failure. Relaxing the first lockdown too early to “protect the economy” and “save summer” created the conditions for the virus to re-emerge and circulate in its new more virulent form. It was ultimately self defeating, ultimately increasing the economic damage and scarring.

This is not hindsight speaking. I said as much at the time. I’m not seeking to blow my own trumpet with that. Others did the same.

It’s now on the government to fix a mess that has left Britain as the worst hit nation in the G7 from an economic standpoint.

Sunak should start by extending the Job Retention Scheme once more. Both the CBI and the TUC have called for such a move. It is due to expire in April, creating a dangerous cliff edge for businesses before they’ve had the chance to properly put their wheels in motion, even if the restrictions are eased in March.

He also needs to think carefully about Britain’s miserly statutory sick pay, which is preventing people from self isolating.

Other support schemes; the business rate holiday and VAT concessions granted during the course of the pandemic are in need of extension too.

The chancellor has said he will set out “the next phase of the plan to tackle the virus and protect jobs” at the beginning of March. That will come too late for many firms. They need help now. They need the certainty extending those schemes will afford. Confidence needs to be restored and confidence in the government too. Mr Sunak inspired it in the early phases of the pandemic. Of late he seems to have lost his touch.

As well as rediscovering it, he could do with showing that he remains a flexible and pragmatic leader possessed of imagination.

Temporary tax breaks and other incentives should be at the top of his menu as he considers the next steps but when it comes to the entree, he could do worse than chew over the idea of taking equity stakes in struggling businesses.

Up until now, the government has focussed its effort on the provision cheap debt, which is fine as far as it goes. The problem with borrowing is that businesses are much more limited in how much of that they can do on than is government. Equity would better absorb losses, reduce leverage and provide more certainty. 

Such a move would normally be anathema to a Conservative government. But to fix the mistakes it has made, it needs to put ideology on the back seat. Mr Sunak needs to get to work before the pandemic stops millions of other people from doing the same.