Coronavirus cash flow crisis: Rishi Sunak must do more for small businesses


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As we recently moved to the countryside, where the atmosphere is a little more icy than in mainland; and I have been busy working from home; and I’m broadly a supporter of Chancellor Rishi Sunak’s policy response, I’ve been quite optimistic about the long-term economic effects of the corona crash and lockdown until the last few days.

However, I changed my mind. I think the Treasury and the Bank of England are going to have to do more and quickly. This is not a critique of their measures, simply an acknowledgment of the Clausewitz saying that no battle plan survives contact with the enemy.

The immediate cause of my change of mind is that I have deliberately called people I haven’t spoken to in ages to see how they are doing and to catch up with me in general. A handful of them run small businesses, outside of financial services, in industries such as events, dentistry, retail, real estate, restaurants, agriculture, and pubs.

The feeling I got is that literally hundreds of thousands of small businesses and millions of households are either strapped for cash, or think they could, over the next couple of months. They have no money, or less money coming in, but have costs like wages, rent, stocks, utilities, and interest payments to pay. Plus, it feels like the Conservative Treasury is a bunch of ex-City men, not a grocer’s girl among them, too focused on big business rather than small.

More scientific testimony to the cash shortage comes from unemployment statistics. An additional 477,000 people signed up for universal credit in the last nine days for which data is available. At one point last week there was a queue of 145.00 to log into the website.

As there are some 5.9 million small businesses in the UK, of which around a fifth are employers, we should assume that they are the ones who are laying off large numbers. Predictions of a decline of around 15% in GDP obscure widespread stories of human suffering.

Wait, you might say, I thought small businesses could apply for interest free business interruption loans; that they get time off and subsidies at the business rate; and that they can put their employees on leave and the government will pay 80% of the salary up to £ 2,500 per month?

There is a tendency in politics to assume that if an announcement is well received, as the Chancellor’s economic response was, everything must be fine. The reality of all of these regimes is that there are significant delays and complications in enforcement. There is no money coming out of the Consolidated Revenue Fund into bank accounts.

First of all, try to get a business interruption loan and you will find that the bank phone lines are blocked. Then you need to fill out a form, submit a case and get approval. Assuming you can get through the system, a loan is a huge risk to take when you have little to no cash flow and no idea what a reasonable forecast looks like.

My contacts in the banks tell me that they are in fact full of cash and capital, now inflated by their politically canceled dividends, but a combination of being overwhelmed by customers in distress, a total shutdown of the business. economic activity, regulatory requirements and business loan scheme interruption requirements, mean they cannot actually lend properly in the economy.

One could even go so far as to say that, such is the tendency to wage the last war, that is to say the financial crisis, we could create the first economic crisis in history in which the only sector that survives is that of the banks, even as the rest of the economy is destroyed.

Subsidies announced by Sunak are contingent on eligibility for commercial tariff relief. But local authorities are also overwhelmed and there are delays in many areas in getting approval. Landlords and tenants cannot reach anyone or are still waiting for a response. And it is only when you get the approval that you can apply for the other grants.

The employee leave scheme is even more uncertain. All the HMRC website says is, “The online service you will be using to claim is not yet available. We expect it to be available by the end of April 2020. ”And the similar program for freelancers says it won’t be ready“ until June ”. In the case of the Self-Employed and Self-Employed Scheme, the website tells you not to contact HMRC – their staff review the tax returns themselves and will contact anyone who qualifies.

What is there to do? Three thoughts occur. The first is that rather than fiddling around, it would be better to send money to each person with particular tax codes, say £ 500 per month, until the leave programs are up and running.

The second concerns owners. Aside from staff, the biggest bill most small businesses face is rent. Right now they’re paying for buildings they can’t occupy. Some owners behave practical and responsible, others abominably. A combination of regulatory pressure and bank loans should be used to get three-month rent discounts, no fuss.

Finally, there is the issue of trust. It would clearly be unwise to state when the lockdown might end, but reassurance about how that might be would encourage companies to take a little more risk and continue trading in one form or another. A commitment to gradually lift restrictions, on a targeted basis, by deploying pioneering techniques in Asia, such as mass testing, temperature monitoring, sanitary coding, tracing and quarantine orders would make companies feel that there is a plan to get the economy moving.

I hesitate to introduce politics into the situation, but it is evident that the Tories are quietly welcoming the strong approval ratings for Boris Johnson’s leadership. You don’t have to be a genius to understand that 2.5 million unemployed and widespread bankruptcies among what were once the core of small business conservatives would be a very different backdrop for the new Labor leader, who must be announced on April 4.

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