Why support for small businesses is crucial to the UK’s economic recovery

The government has a duty to continue its proactive policymaking to protect millions of jobs and help firms get back on their feet.

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When the lockdown hit in March, the Federation of Small Businesses (FSB) began focusing all of our efforts on working with the government to secure as many support mechanisms as possible for our members. But with 2.8 million people now out of work and on benefits, and with the expected 700,000 young people leaving the education system for the labour market, more needs to be done beyond the flagship schemes that have kept the economy on life support until now.

As a result, the FSB engaged closely with the government, and politicians of all parties, and this week we have welcomed a number of elements of the Chancellor Rishi Sunak's summer economic statement, providing small firms with much-needed support.

There have been important successes that will help many stay afloat: from the furlough scheme to grants for the self-employed, and we have been working flat out to make sure small firms get the help they need as the Covid-19 storm continues. Yet it is important to remember the sheer scale of the crisis. These headline measures cannot be the only steps taken to help, especially in context of the recovery. There are also some business owners who have been left out of support schemes

In his statement on Wednesday, Sunak took important further steps, pledging a raft of initiatives. New measures include a new coronavirus job retention bonus, the Kickstart programme to combat youth unemployment, a VAT break for accommodation, food and attraction, 50-per-cent-off meal discounts and more than £1bn to improve job centre services, careers advice and other support. With Covid-19 plunging the economy into uncertainty, it has never been a more pressing time to offer help. But one thing is clear: these schemes must work for all, be easy for small businesses to be part of, and not be bogged down by bureaucracy.

The new job retention bonus gives businesses £1,000 a head for every employee they bring back from furlough and keep employed to at least the end of January next year. This was a significant step, as it will help employers who were unsure about whether they would be able to afford to bring staff back, to do so. This is not as generous as the furlough scheme itself, but a reasonable proposal as the furlough scheme winds down.

Apprenticeship incentives are a vital way to help young people gain skills and find employment. The FSB pushed for these before the statement and it was a relief to see the government deliver them for businesses in England. Young people are looking for work now, so the quicker this scheme is up and running, the better for our economy. The new traineeships are just as important. The Kickstart scheme is set to create 300,000 new jobs for 16 to 24-year-olds. Coupled with the fact that the government will pay overheads of £5,500 per employee – as well as an extra £1,000 bonus – this will support the economy tremendously.

Meanwhile, reducing VAT from 20 per cent to 5 per cent for some of the hardest hit firms is dramatic but absolutely necessary. With more bookings, takings will rise, and this will have a positive knock-on-effect on supply chains. It will provide a jolt of much-needed custom across whole industries. But it’s important to note that this doesn’t directly help those who are not VAT-registered. We’ll have to keep a close eye on how they fare over the coming weeks. The "Eat Out to Help Out" initiative is an interesting innovation to try to restore confidence, and the FSB will be working with policymakers to ensure that no establishment misses out. We are pressing right now on a series of questions over how the scheme will be delivered, including the level of detail the government requires, what it covers, what changes to till systems are needed and whether businesses should self-certify.

Guaranteeing green jobs will also offer a much-needed boost to builders and tradespeople whose livelihoods are affected by the pandemic. But the government will not hit its environmental targets if businesses aren’t empowered to be part of the solution. This scheme should be extended to small businesses premises as well.

There are still gaps in what is on offer, however, This is the government’s Phase 2, and it’s disappointing to see company directors, start-ups and others that missed out from income support in Phase 1 still left out in the cold. The government should be helping them to be in the right position to return to doing business and contribute to the economy, but after over 100 days of no support, they are struggling to survive. The government has still not given a coherent reason as to why they will not overcome the barriers.

The government has also made no mention of childcare. Without ensuring effective childcare is in place, nurseries and childminders are not able to help to get the nation back to work. It’s clear that while the support packages announced in March and this week have benefited millions, difficult times still lie ahead for small businesses as they try to pick up the pieces.

The FSB's latest membership survey lays bare the impact of the coronavirus pandemic, with one in ten small firms already having to make redundancies. Latest figures show that 9.4 million people have been furloughed, showing the extent to which the Job Retention Scheme has protected the livelihoods of millions as economic activity has slumped.

Clearly, the economy won’t recover overnight. The crucial support that’s on offer needs to be kept under review, and adapted to reflect the new normal as we chart a course back to economic recovery.

Mike Cherry is chairman of the Federation of Small Businesses.

This article is from our recent Spotlight report on business continuity. Click here to see the full supplement.

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