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

The Daily Telegraph - Business - - Front Page - Matthew Lynn

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

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