Sunak extends lifelines for businesses but more may yet be required

With large parts of the country under what basically amounts to a soft lockdown, the government had little choice but to extend both the furlough scheme and the various loan schemes designed to help businesses weather the current storm until April.

Chancellor Rishi Sunak no doubt shuddered when he looked at the potential cost but he will have known that the the cost of not acting was higher still both economically and politically.

The imposition of tier 3 restrictions on London and a hefty chunk of southern England, in addition to Yorkshire, the northwest and the midlands, meant a hospitality apocalypse was looming. It may still be on the way. 

Predictions of one in three businesses in the sector going down have been made, with the loss of Christmas trade in particular serving as a hammer blow. This is before you factor in the government-inflicted damage that Brexit is going to cause, which ministers have offensively characterised as a mere “bump in the road”.

Don’t get me wrong, with the rates of coronavirus infection rising the public health restrictions are clearly necessary. Where the government has gone wrong on that front is with the Christmas semi-relaxation of the rules, which will come within days of “tiering up” millions of people. Tears is what that will end in.

It will potentially exacerbate the already harsh economic blowback by prolonging the pain of the pandemic. 

The shape of things to come could be seen in the latest unemployment figures, which showed an uncomfortably sharp rise in joblessness. So you bet Sunak had to put his hand in the Exchequer’s pockets again to dole out more support even if he gulped as he did it.

While this may not make for comfortable reading in the Treasury, more may yet be required to ensure UK plc comes through this with the minimum level of scarring.

The extension of the various schemes extends life support but the problem is if it is immediately cut off in April, some of the patients Sunak has worked so hard to keep going will die.

“The chancellor should be wary of another potential cliff-edge, as it’s still far from certain when demand will rebound,” said Roger Barker, head of policy at the Institute of Directors.

His point is well made. Sunak needs to consider some form of tapering so that the cliff edge is replaced with a manageable slope. 

He should also consider greater targeted support for the worst affected businesses. That may need to include grants. The problem with loans, even loans backed by the state on favourable terms, is that they have to be paid back. Denied vital revenue, businesses in the worst-hit sectors may not be in a position to take on more debt.  

Targeting has been absent from the support that’s been offered but it’s notable that both unions and business groups are singing from the same hymn sheet when it comes to this subject. Sunak should open his ears.

He should also take the time to consider some of the points made by the House of Commons Public Accounts Committee earlier this week when it published a report containing some pointed criticism of the schemes.

The speed with which they were put together by Sunak and his officials – the work of the Treasury’s much maligned (by this government) civil servants should not be forgotten – was commendable. It was an impressive achievement that does them great credit.

That said it is clear that there are some holes in their work. Some businesses have found it hard to access the support they need when they’ve applied for loans. The plight of micro-businesses in particular has been highlighted, but it’s also true that some businesses that bank with non-traditional institutions have  been left out.

Having made the right call in extending the schemes, the chancellor should now work to fill in the gaps. If he’s worried about the cost to the public purse – and he should be – he might also look at ways to reduce the potential for fraud, which is another issue the committee raised and with good reason.