As it became clear that the end of the Covid-19 restrictions would be a slow and nervous process, additional Government assistance for businesses became inevitable. Initial hopes of a 12-week closure and a quick reopening have long disappeared. Businesses are facing chronic cash shortages and the solvency of many is in question.
The Government was correct to move quickly to introduce wage and income supports as the crisis hit. Protecting people’s incomes, to some extent anyway, and keeping as many employees as possible connected to their employers was important. The second part of the rescue plan, announced at the weekend, aims to support liquidity and prepare businesses for recovery. This is a potentially costly and challenging job covering companies of all sizes, in sectors being hit differently by the crisis.
The new package covers many of the key requirements – guaranteed credit, helping SMEs through a restart fund and tax and rates forbearance and an investment fund for larger businesses. It is the correct step to take even if some of the vital details have still to be outlined and – crucially – a new government will be needed to to pass some of the necessary legislation. The slow progress towards government formation may yet see a new administration formed, but if the talks fail then the ability to deliver help to businesses will be delayed and this could be very costly.
Guaranteeing credit is an important step. It is vital that the resulting loans are delivered at a very low interest rate and with a delayed repayment schedule. Many companies will need time to build up revenues. The concept of warehousing business tax payments for a year is sensible – it will have an upfront cost, but if it keeps companies alive they will be around to pay tax in future. Further tax measures may be needed in time.
The extension of forbearance on local authority rates is also welcome – and may need to be extended further by the next government, with the outlook for many retailers, restaurants and, of course, pubs now deeply uncertain.The fund to help smaller enterprises to restart is also essential – but more cash is likely to be needed here.
A different job faces the State in helping medium and larger businesses. Here the proposal is to invest on commercial terms and ensure that, unlike in some other countries, state assistance does not translate into payouts to shareholders. Clear guidelines will be needed here and transparency into how these funds are used.
Much work lies ahead to get these schemes operational. Delivery is now vital. Already it is clear that many firms will not survive the crisis. This is about damage limitation and, in particular, about giving thousands of SMEs a chance of survival and trying to save as much as possible of the productive base of the economy.