Let’s leave all the zombie firms alone and allow the start-ups to flourish
Entrepreneurs must be the focus of Chancellor’s next phase of business support as a second wave looms
Yet more cheap loans for companies. Equity stakes in firms on the brink of collapse. Rent holidays and another round of tax cuts. Rishi Sunak is reported to be getting ready to unveil a fresh range of support for business as another lockdown looms. We might not get right back to the whirlwind of announcements in April, when the Chancellor was spending tens of billions on one programme or another on an almost weekly basis. But it seems inevitable the Treasury will step in with something.
But hold on. Does that really make any sense? Sure, we can understand that the Government wants to keep companies alive if there is another lockdown, either nationally or locally. But we will simply end up giving barrow-loads of government money to zombie companies. It would be far better to offer support to entrepreneurs instead, with more help for start-ups, tax breaks for businesses that are expanding their workforce, and by converting the furlough scheme into a new business allowance. We can’t simply keep dying firms alive forever – we need to support the growth companies that can get us out of this mess.
It remains to be seen how the Government responds to the spike in Covid-19 infections. The UK is not yet up to French and Spanish levels, and hospitalisations and deaths remain low compared with the spring, but it is still looking like a resurgence if not a full-blown second wave. Huge swathes of the country have seen local restrictions reimposed. There could be a two-week national deep freeze next month. And we could easily see another round of closures of pubs and restaurants, while it looks like a long time before the nightclubs, theatres and sports stadiums open their doors again.
Against that backdrop, it is no real surprise that Sunak is looking at another round of support. If there was a case for helping companies in April, it is surely just as valid in September.
If a business is closed down because of an epidemic then it is only fair to give it some help to get it through what we still hope is a temporary emergency. We want to preserve as much of the economy as possible for when this is finally over.
There is a catch, however. We are going to end up giving money to old, decaying businesses, rather than to the new ones that are already starting to emerge despite the pandemic.
Property firms with lots of empty malls will get help, not home delivery services. Theatres will get more money instead of streaming services. Gym and restaurant staff may be paid to remain in limbo but not takeaway chefs or fitness app developers. That might have made sense for a two-month emergency. For six to 12 months of rolling lockdowns? Not so much.
In fact, if the Chancellor is planning to give away more money, he should hand it to entrepreneurs instead.
There are already plenty of new businesses and new ways of working emerging. And from the job figures, we can see some companies are expanding even while others are contracting.
Amazon, not terribly surprisingly, said this month it was planning another 7,000 new jobs in Britain this year on top of the 3,000 already created. Tesco has announced 16,000 more permanent jobs. According to the Office for National Statistics, vacancies collapsed during lockdown but then rose 10pc between May and July, with 370,000 jobs on offer, with most of the increase driven by small businesses. The companies that can cope with the epidemic, and still grow, are starting to emerge. Surely that is where we should target help. Like how? Here are three places we could start.
First, expand the start-up fund. Launched in April, the £1.25bn Future Fund offers loans to start-ups that can either be repaid or converted into equity. It has been tapped by a huge range of businesses such as Tom and
Teddy, a Bristol-based beachwear company, and Habito, a digital mortgage broker, among many others.
We could easily double the size of that fund and extend it for another six months. The figures will be audited one day and like any state-backed venture capital scheme, there are probably a few loans to chancers that will never be repaid. But lots of promising businesses have been backed and each one is creating jobs.
Next, we could offer tax breaks for hiring new people. The Chancellor has dabbled with that with the Kickstarter scheme for subsidising wages for young people. But it wouldn’t be hard to offer a year’s holiday from National Insurance for anyone newly hired (with a few checks in place to stop firms firing staff and re-employing them the following week).
Taxing companies for employing people doesn’t make much sense at the best of times, but right now it is even more bonkers than usual.
Finally, we could borrow a trick from the Eighties and replace the furlough scheme with a revamped enterprise allowance. Offer people a year’s salary to go off and start a business. It would certainly be better than paying them to sit around to do nothing until they finally get made redundant, which is what the furlough scheme will turn into if it is extended.
In April, it might have seemed we could simply reload the 2019 economy once the virus was under control. Right now, that doesn’t look so likely.
There has been a permanent shift to working from home. The digital market has accelerated by a decade. Cash isn’t coming back and neither are many shopping malls, airlines or restaurant chains.
Once we emerge from this crisis, we need a vibrant, growing economy based on companies that have seized the opportunity for change.
What we don’t need are lots of zombies kept alive with government money – and yet simply extending the existing bailout schemes is going to create precisely that.
‘We can’t simply keep dying firms alive forever – we need to support the growth companies’
The retail sector has been among those hardest hit by the pandemic