Su­nak must tap in­ner Time Lord to pre­vent lost start-up gen­er­a­tion

In his bulging in-tray, the Chan­cel­lor can­not lose sight of the job cre­ation role that small firms play

The Daily Telegraph - Business - - Business Comment - RUS­SELL LYNCH

Chan­cel­lor Rishi Su­nak is a self-con­fessed Star Wars ob­ses­sive. But it might be wise for him to add Doc­tor

Who to his view­ing, as he has a prob­lem on his hands wor­thy of any Time Lord: how do you save a com­pany that doesn’t ex­ist yet?

It may seem churl­ish to add this fiendishly hard task to his to-do list when Su­nak has al­ready paid out £30bn in fur­lough money to ex­ist­ing busi­nesses and thrown the weight of the state be­hind £50bn in loans to hun­dreds of thou­sands of com­pa­nies, to pre­vent eco­nomic scar­ring from the pan­demic.

But, wor­ry­ingly for the Chan­cel­lor, re­search has shown that some de­gree of eco­nomic scar­ring has al­most cer­tainly hap­pened, sim­ply through a slump in com­pany start-ups dur­ing the lock­down phase of the pan­demic pe­riod. The Chan­cel­lor has a Fu­ture Fund to match back­ing for in­no­va­tive start-ups with al­most £470m in con­vert­ible loans so far, but to be el­i­gi­ble for sup­port – to state the ob­vi­ous – the firm has to ex­ist.

A team of econ­o­mists from the Univer­sity of Kent, Ox­ford and UCL have ex­am­ined com­pany reg­is­tra­tions data at Com­pa­nies House since the start of 2020. They found that busi­ness cre­ation fell 25pc on av­er­age be­tween Jan­uary and the end of May, with the big­gest 40pc fall seen dur­ing the four weeks fol­low­ing lock­down on March 23. Un­sur­pris­ingly, en­trepreneur­s didn’t think it was the best time to open a new restau­rant, say, as ac­com­mo­da­tion and food ser­vices reg­is­tra­tions dropped over 40pc year on year. Re­gion­ally, there are also in­ter­est­ing splits as Wales, North­ern Ire­land and Scot­land saw 30pc-plus falls, com­pared with a much smaller 11pc drop in Greater Lon­don.

Th­ese fig­ures aren’t per­fect, as they also in­clude com­pa­nies cre­ated for ac­count­ing pur­poses. But they do throw a spot­light on a crit­i­cal area of the econ­omy. This is be­cause start-ups are huge con­trib­u­tors to job cre­ation and in the US, where there are more de­tailed fig­ures, they on av­er­age cre­ate a net 2.9m jobs every year.

Hence Covid-19’s “lost gen­er­a­tion” of busi­nesses could cre­ate a “per­sis­tent dent” in ag­gre­gate em­ploy­ment in years to come, ac­cord­ing to the re­search.

Wage-scar­ring for in­di­vid­u­als en­ter­ing the labour mar­ket dur­ing re­ces­sions is well-doc­u­mented by the likes of for­mer rate-set­ter David Blanch­flower, but the same also holds true for com­pa­nies: those born in re­ces­sion not only start smaller but tend to stay smaller too.

That ob­vi­ously de­pends on whether they make it; sur­vival rates are much lower in re­ces­sions for both start-ups and younger busi­nesses less than 10 years old.

For a coun­try like the UK at­tempt­ing to fend off a youth un­em­ploy­ment cri­sis, the wor­ry­ing im­pli­ca­tion of the “miss­ing star­tups” is that th­ese younger com­pa­nies typ­i­cally dis­play higher pro­duc­tiv­ity, hire in newer mar­kets, and hire younger work­ers.

They are at the sharp end of the “cre­ative de­struc­tion” process which should help the wheels of cap­i­tal­ism turn in nor­mal times.

More con­cern­ing still is the num­ber-crunch­ing on the im­pli­ca­tions of the start-up dearth for jobs over the longer term. Un­der a sce­nario which as­sumes the low­est num­ber of start-ups, weak­est growth po­ten­tial and low­est sur­vival rates since the Seven­ties, the re­searchers find the im­pact “very per­sis­tent” even if the shock only lasts a year. Over the course of the next decade, in the US there are 10.6m lost “job years” (full­time em­ploy­ment for one per­son over one year). Even a strong “V” and a bullish bounce­back have 2m job years lost, ac­cord­ing to the au­thors.

The good news is that since May’s re­open­ing, UK reg­is­tra­tions have bounced back, with the au­thors sug­gest­ing just 7,100 “miss­ing” firms com­pared with 2019, rep­re­sent­ing a fall in com­pany cre­ation of 3.4pc.

But at­tempt­ing to ad­dress the risks around a “miss­ing gen­er­a­tion” of start-ups is a nec­es­sar­ily huge chal­lenge for a Chan­cel­lor whose in-tray is full of them.

When the lion’s share of the UK’s high-growth com­pa­nies are in Lon­don and the South East, us­ing the cri­sis to en­cour­age start-ups else­where would be use­ful, per­haps through en­hanced sup­port for Lo­cal En­ter­prise Part­ner­ship grants in the re­gions.

It also chimes with the “lev­el­ling up” agenda of a gov­ern­ment rocked back on its heels by the pan­demic.

Like the Doc­tor af­ter a run-in with Daleks, the UK’s jobs mar­ket is in sore need of re­gen­er­a­tion: sup­port­ing start-ups could play a key role.

Miss­ing in­gre­di­ents in obe­sity plans

Long be­fore any­body had ever heard of Covid-19, obe­sity was a pan­demic sweep­ing the globe. But it took a brush with death for the Prime Min­is­ter to have his Da­m­a­scene con­ver­sion from arch-critic of the nanny state to “don’t be a fatty in your 50s” zealot.

That said, it will take more than pre-wa­ter­shed ad­ver­tis­ing bans to ar­rest the prob­lems with obe­sity which have played their part in the UK’s more painful dose of coro­n­avirus than other na­tions. Boris John­son is ranged against pow­er­ful macro-eco­nomic forces in his bid to tackle the nation’s health is­sues. Obe­sity is more preva­lent among lower-in­come groups, and one of the main rea­sons for the trend is that it costs around three times as much to eat healthily as it does to eat un­healthy, fac­tory-made, pro­cessed foods. Com­bine that with a decade of real-terms pay freezes – a painful era which we were just climb­ing out of when the pan­demic struck – and it is lit­tle won­der that cheaper and more fatty al­ter­na­tives have gained ground along with the nation’s waist­lines.

Faced with those dy­nam­ics, is it re­ally so shock­ing that only around one in three peo­ple in the UK eat a healthy diet? Don’t un­der­es­ti­mate ei­ther the deeper struc­tural trends such as in­creas­ing car us­age, or the im­pact of gov­ern­ment in­ter­fer­ence in the food mar­ket, ei­ther. US tar­iffs on sugar and sub­si­dies on corn have been blamed for en­cour­ag­ing the de­vel­op­ment of high-fruc­tose corn syrup, which was first used in Coke in the Eight­ies and has been linked to higher obe­sity.

Lead­ing ex­perts like Prof Tim Lang, who heads the Cen­tre for Food Pol­icy, ar­gue a more holis­tic ap­proach is needed. It isn’t enough for lib­er­tar­i­ans to blame in­di­vid­u­als for let­ting them­selves go when eco­nomic forces shape di­ets.

When the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment says that obe­sity could cost de­vel­oped economies 3.3pc of GDP on av­er­age over the next 30 years through ill health, it is a price we can’t af­ford to pay.

A vis­i­tor to the Google for Star­tups Cam­pus in Lon­don. Start-ups play a ma­jor role in the jobs mar­ket, of­fer­ing em­ploy­ment to younger work­ers in par­tic­u­lar

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