Coronavirus: SMEs will need more than a slow-moving loan scheme to recover
Britain was once disparagingly described as a nation of shopkeepers and now, over two centuries later, small, and medium-sized enterprises are the backbone of the British economy. According to the Federation of Small Businesses, SMEs account for the vast majority of the UK business population; three fifths of employment and around half of the UK’s turnover in the private sector. The Covid-19 crisis represents a clear and present danger to this vital artery of the UK economy.
Like many governments across the world – the UK has thrown out the old fiscal rules to deal with this crisis. They’ve mobilised the power of the British state – unrivalled in peacetime – and for that Rishi Sunak and the UK Government should be commended for reacting comprehensively and at speed to protect businesses and individuals from Covid-19 hardship.
Despite this unprecedented support, many British SMEs are still fighting for survival. Stimulus packages are proving difficult to access, a mere 6,000 SMEs have managed to access the emergency loan initiative due to lack of clarity and lender support, for example. The government is no doubt working ardently to address the immediate issues, but it must not lose sight of long-term challenges.
A significant number will be worried about their prospects once the world returns to normal. At present, there is no clear post-Covid-19 growth strategy to ensure SMEs have the tools and opportunity to recover and contribute to the UK’s economic regeneration. Recognising the enormous and urgent pressures the government is consumed with currently, a strategy is needed, and quickly.
It’s often said that crises of this magnitude accelerate history – forcing change that was inevitable before but necessary now. The Covid-19 crisis is such a moment. How business and the Government respond will set the tone for a generation. Yet how that world looks remains uncertain with many questions unanswered: does this mark the end of Pax Americana? Will China dominate global affairs? Could global cooperation disintegrate entirely or re-emerge with force?
Whilst these are all valid questions, the UK must have the confidence to forge its own path that best supports its core businesses. Only a holistic approach, with government building a collaborative framework, will deliver the lasting change that is needed. After protecting businesses in the short term, the Government’s attention must turn to ensuring that SMEs – as the backbone of our economy – are ready to come out of hibernation when the lockdown ends.
One accelerated change in the UK is likely to be the prominence of the digital economy. Many SMEs right now are suffering because they don’t have the adequate digital capacity or infrastructure. For example, local British shops might find a role and thrive as essential local delivery hubs if they had e-commerce capabilities, challenging the dominance of big supermarkets and online retailers.
The UK has historically dominated multiple industries across the globe: steel in Sheffield, banking in London, and textiles in the North West. In 2020 there are very few industries which the UK dominates globally. The current Covid-19 Disaster provides an ideal opportunity to reverse this relative decline and disrupt other nations and dominate the digital economy. A world class digital infrastructure therefore needs to be a priority to improve the UK’s competitive performance and significantly drive innovation.
‘Levelling up’ is a one of this Government’s favourite phases, usually in reference to the north-south divide which would certainly benefit from a better deal for SMEs, but there should also be a similar ambition for SMEs and big business. Many big businesses have shown their true colours during this pandemic – Liverpool FC for not looking after their workers and Tesco for declaring a dividend, spring to mind – and many of the biggest winners of the current state support are big businesses and tech companies (many notoriously absent when the taxman comes knocking). The Corporate Finance Network has suggested that a fifth of UK small businesses are at risk of collapsing within the next month. You would be hard pushed to find a similar statistic for big business.
It is therefore vital that the post-crisis economic strategy consider those companies who are going to be crucial to repairing the public finances. SMEs have the potential to lift the UK economy if they are adequately protected and supported. Without them, the Government’s ability to pay down the debt accumulated during this crisis will be impaired.
Covid-19 has laid bare how vulnerable SMEs are during times of hardship. In response, the Government needs to adopt a form of positive discrimination for SMEs. A form of affirmative action is needed – particularly around taxation and procurement. In Canada, the small business tax rate is only 9 per cent – 19 per cent lower than the general corporate tax rate – there’s no reason why the UK Government couldn’t do something similar at relatively small long term cost, as the exchequer will share in these businesses future successes. But it is not just about money; the government should seek to find ways to support SMEs with a positive approach to procurement.
There’s the potential that this crisis could not only turn into a recession but a full-blown depression, creating economic conditions few in the world have known. If the UK is to emerge intact, the next phase of the Government’s response must be to ramp up support for SMEs. If the Government is serious about lifting up SMEs – or indeed about saving the economy as a whole – this time of crisis must act as a catalyst for reform to secure the long-term future of the backbone of Britain.