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
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