In many ways, the initial economic response to coronavirus was the easiest bit. Throw a lot of money at the problem and try to save as many businesses as possible. This job is far from over, but the next step will be harder: getting areas of the economy (when it’s safe to do so) back up and running.
In its initial reaction, some governments have responded better than others. For the UK, one policy that has worked remarkably well has been the Job Retention Scheme. While in America, the unemployment rate has passed 20%, the opportunity to furlough staff has kept the UK rate at around 4%, for now at least. The Bank of England expects this to double to around 9% in the second quarter, but a lot will depend on how the government unwinds the scheme.
The option to furlough was exactly the right policy to deal with the extreme uncertainty. Without it “perfectly viable firms would have had to sack perfectly competent workers doing perfectly good jobs.” However, with a third of the potential workforce now not working and receiving government financial support, this scheme simply isn’t – and was never meant to be – sustainable. Some of these jobs won’t be viable without government support making the unwinding of the scheme both necessary and painful.
The government is expected to phase the scheme out by sector, depending upon how restrictions are impacting businesses. One challenge will be delineating sectors – for example, what happens to a PR firm that only works with clients in the hospitality sector? Or a manufacturing firm that supplies products to large conferences or festivals? Drawing the boundaries between those that are supported and those that aren’t is an unenviable task.
The government is looking at more flexibility in the transition (as many entrepreneurs have asked for). The economist Jonathan Portes suggests that when the scheme is ended in some sectors, individuals and firms could be offered a choice – either a lump-sum grant to the worker, or ongoing (but time-limited) financial support for short-time working. Portes also suggests wage subsidies for new hires – either of formerly furloughed workers or the unemployed to promote job creation in growing sectors.
There are no easy answers, but let me know your thoughts on how so we can represent your views in conversations we are having with government.
Future Fund Tweaks
As reported in Sifted, the details of the Future Fund are still being thrashed out. The Future Fund will be an invaluable lifeline for entrepreneurs whose businesses aren't suitable for the loan schemes, but we would like a few tweaks to ensure more entrepreneurs are able to benefit from it.
To open it up to more entrepreneurs, the amount a business owner needs to have previously raised should be reduced from £250,000 to £100,000 and investments through the Enterprise Investment Scheme should qualify so angel investors are incentivised to use it. In addition, the length of investment should be increased from three years to five years for funds that want to access the scheme through Venture Capital Trusts. Watch this space.
Procure Meant
Tussell has released insightful data on the impact of coronavirus on public procurement. There has been a dramatic drop in public sector opportunities, with fewer than 900 invitations to tender published, down 66% in April compared to February. That said, the public sector has published 141 contracts worth £433m directly relating to its Covid-19 response, and this only scratches the surface as the government is reaching out directly to suppliers given the need for speed.
As the report recommends: “While public procurement is usually guided by competition regulations, in emergency situations such as this the public sector are able to directly award contracts relevant to their response to the crisis. If you think you can help the response to Covid-19, consider reaching out directly to public bodies to offer your services.” Find out more here.
Hive Mind
I’ve been invited to create a short top tips video on how entrepreneurs are dealing with coronavirus for the NatWest Business Hub. Who better to ask than a network of thousands of entrepreneurs? If you have any tips you would like to share with other businesses, let me know and I’ll quote you and your business for the video.
After Furlough