Opinion: New year, same approach to stimulus

Treasury spending on battling the economic impact of COVID-19 is now approaching £300 billion – a truly enormous sum that has no equal in peacetime. But while the figures involved are indeed beyond compare, Richard Dawson asks if the piecemeal nature of business support is the right way to go or whether a long-term approach is needed to help firms plan ahead?

As the new year ushers in a new national lockdown, it seems not only did the virus not take Christmas off like the rest of us, it actually worked double time to become even more infectious than before.

There were more than 60,000 cases of COVID-19 yesterday (January 5) – a new record – and since December 29 there have been over 50,000 people catching coronavirus every day, many of them the new, more transmissible strain.

This led the Government to announce a new national lockdown – the strictest and longest set of restrictions on public life since the crisis began last spring. The confinement will be in place until at least February 15 and could run through until March.

Lockdown 3.0 has prompted yet another multi-billion-pound intervention from Chancellor Rishi Sunak, this time in the form of £4.6 billion of one-off business grants.

The new lockdown grants will be made available to retail, leisure and hospitality businesses and will be worth up to £9000 depending on the rateable value of the business.

Approximately 600,000 business properties are expected to benefit from the scheme.

A £594 million discretionary fund is also being rolled out to support businesses outside of the hardest hit sectors who can demonstrate they have been severely impacted by COVID-19.

Local authorities will be responsible for the dispensation of funds as in previous rounds of support.

Having spent close to £300 billion tackling the economic crisis that has run parallel to the public health crisis since the beginning, few could doubt the Chancellor’s commitment.

The problem with his approach from the point of view of business is that it seems to be lacking any kind of long-term strategy.

Time and time again, Mr Sunak has stepped in when the situation with the virus has intensified. But while he should be commended for reacting swiftly, there is a growing need for a more pro-active approach.

Instead of writing fiscal policy on the fly, responding to immediate needs with ad-hoc, piecemeal funding rounds, the Chancellor should introduce a system that scans a much longer-term horizon.

2021 will no doubt be a better year than 2020 was, as the vaccine rollout creates a route out of the current malaise. But businesses will still struggle this year and need to have some indication of what support is going to be available in the medium term.

BCC director general Adam Marshall said: ‘While this immediate cash flow support for business is welcome, it is not going to be enough to save many firms. We need to see a clear support package for the whole of 2021, not just another incremental intervention.

“The Government must move away from this drip-feed approach and set out a long-term plan that allows all businesses of all shapes and sizes to plan, and ultimately survive.”

The new lockdown grants are in addition to existing schemes such as the local restrictions support grants worth up to £3000 per month for closed businesses and the 100 per cent business rates relief scheme for retail, leisure and hospitality businesses.

The Government has also extended the furlough scheme through to April and the state-backed business loan scheme through to March.

However, FSB national chair Mike Cherry believes this does not match the scale of the crisis.

He said: “While this additional financial support will be a lifeline to 600,000 businesses and therefore has value, there is a need for a plan that matches the scale of the economic damage we are seeing.

“For many it just won’t be enough for businesses who are already under the cosh and on the brink.

“We need to see the Government make clear its plans for more finance capabilities made available to those who have used their allocations through Bounce Bank Loans as well as extending the period before repayments begin.

“This lockdown is expected to last for some time, even when restrictions ease, many small firms will be unable to function at 100 per cent, if at all. Which is why the government should create a Spring Economy Plan to help firms get through to drive a vaccine-enabled recovery.”

The combination of grants, loans, rates relief and furlough have and will continue to ease the financial burden for many companies. But the reality is that the burden remains severe.

This makes the case for a longer-term system of business support to be introduced all the more compelling. Businesses must be able to plan ahead.

The March Budget provides the perfect opportunity for the Chancellor to set out such a long-term plan.