Following the chancellor’s press conference on Tuesday, I wanted to take some time to consider what had been announced and canvas opinion, before responding to the government’s measures at how to combat the financial burden of the Coronavirus crisis.
My primary reaction was one of relief and satisfaction. The title of the petition I started called for ‘Government to offer economic assistance to the events industry during COVID-19’. However, we must allow what’s been offered to sink in and look into the finer details.
Government loans
One of the key requests I made to government was for grants or interest free loans to help businesses meet their financial commitments during the crisis. The chancellor responded by offering government backed loans, interest free for six months. Great. At least on the surface. We now need to closely inspect the fabric of how this could work in reality. A number of questions immediately spring to mind:
· What does the interest rate go up to, following the initial six months? Is it the Bank of England’s base rate of 0.25%? The current GBP LIBOR rate of 0.7% over a period of 12 months—or will it be considerably higher? When will this be announced?
· What about companies already in a lot of debt, that can’t afford the burden of additional borrowing? Will they be left to go bankrupt and consign their staff to a growing number of people already made unemployed by the Covid-19 crisis?
· How do businesses plan for this? Normally, borrowing is done for a specific purpose. Perhaps to invest in new equipment, new premises or to fund a major expansion. The current climate is uncertain, and nobody really knows what the future looks like. Are companies hoping we’ll be in the clear in three months? What happens if we’re not? Will there be more funds available and how practical is it to pile debt upon debt to navigate these treacherous waters?
I’ve seen a lot of negativity across social media—people criticising why the government is offering loans rather than simple bailout package in the form of grants that don’t need to be repaid. Whilst I fully understand these views, we must keep in mind that the government is borrowing money for their rescue package. One way or another it needs to be paid back. That can either be from businesses who should hopefully return to profitability once the current crisis has passed, or through a sustained period of austerity with tax rises and cuts in public services. It’s arguable that we stripped our public services so far back after the banking crisis that they are in too depleted a state to deal with the current situation. There is no perfect solution and no right or wrong way of dealing with this.
Aviation, travel, retail, hospitality and leisure sectors
Rishi Sunak discussed special treatment for the above-mentioned industries, which will have resonated badly with many people in the events sector. My first question would be, how does the government differentiate between leisure and events? Concerts, festivals, theatre and a lot of B2C events could be classified as part of the leisure industry. But where does that leave the corporate events market? By offering a business rates holiday for the next twelve months, as well as a cash grant of £25,000—he’s certainly doing them a favour. But who is eligible? Music venues almost certainly are, but what about crew and suppliers who work with venues? Does this extend to them? Many businesses in our industry supply a wide range of markets, including, but not limited to the leisure sector. How does this plan affect them?
There has been criticism of the chancellor’s special treatment for the aviation and travel industry. I think this is unfair for one reason: as an international industry, we need the airlines to stay afloat.
The International Air Transport Association said that out of the 700 global airlines, only 30 were likely to survive the next few months without help. What does that mean to us? Well, a flight to Barcelona used to be around £200. Imagine how much more the same flight will cost next year with so few airlines around. We could be paying over £1000 for a two-hour flight. Of course, we could charge this back to our clients, but how sustainable is that? One way or another, we’ll all being picking up the tab for the current situation if it isn’t handled correctly.
£10,000 to 700,000 of the UK’s smallest businesses
The chancellor also said he will offer cash grants of £10,000 to 700,000 of the UK’s smallest businesses, across all sectors. A welcome intervention, but how does he define the smallest businesses?
According to the Department for Business, Innovation and Skills, there are 5.8 million small businesses in the UK, making up 99.3% of the total number of businesses. So, over 5 million small businesses will go without. The average number of employees in a small business is 50. Therefore, the government assistance would equate to £200 per employee—assuming the small business employs the average number of staff. All of a sudden, Rishi Sunak’s package doesn’t look to offer much support. That’s not even a week’s wages, let alone enough to get through the next three months.
Support for employees and individuals
One thing’s for sure, the government must prioritise support for business, and do everything it can to ensure businesses take care of their staff. But, there will be situations which prevent this. Faced with months of zero income, there’s only so much businesses can do to keep their staff, even with the government backed loans.
The announcement that lenders will offer forbearance to debtors on their mortgage repayments was welcome news. The omission of how to support those in rented accommodation was an oversight, but looks as though it has been cleared up.
I would further suggest that the government mandates utility providers to follow lenders and suspend collecting bill payments for the same duration as the mortgage moratorium. Additionally, this gesture should be extended so no bank or credit facility has the legal right to request monthly loan, credit card or bank overdraft charges for the same three-month period. The taxpayer bailed out the banks in 2008, it’s high time they returned the favour to the UK population.
The chancellor said: “…in the coming days, I will go much further to support people’s financial security. In particular, I will work with trade unions and business groups to urgently develop new forms of employment support to help protect people’s jobs and incomes through this period.” A few days have now passed, I expect to hear some new information.
Paused employment and Statutory Retention Pay
One of my suggestions to government was for employers considering redundancy to offer staff an alternative of pausing their employment—effectively a forced sabbatical, reviewed after a set period of time. Although not an ideal solution, if I was faced with the option of having three months off, unpaid, or losing my job, I know which one I’d choose.
The Resolution Foundation, an independent economic thinktank has taken this concept a little further and proposed a government backed benefit called Statutory Retention Pay (SRP). SRP would work in the same was as Statutory Maternity Pay. Where the employee has time away from the workplace, with no obligation to work, but remains in employment. The government would cover the costs of SRP via a flat-rate subsidy to employers worth £151 per week for an initial six months. In this format, the SRP scheme would cost around £3.6bn, while a more ambitious earnings-linked scheme, in which staff are paid at least two-thirds of their typical salary, would cost around £8bn over six months.
An unprecedented challenge requires a radical response. Two weeks ago, we would never have seriously considered such a suggestion—yet here we are in an altered world where very little comes as a surprise these days.
Some parting thoughts
I passionately believe that the chancellor’s announcements were a step in the right direction, he’s thrown a lifeline to millions of businesses and individuals around the country—providing they’re in a position to accept in on the proposed terms. Yet there is still work to be done, more clarity to be explained and greater detail to be discovered.
One of the areas I will be pursuing is better resources for individuals who fall victim the economic storm we find ourselves in. I will be focussing on the potential impact for employed staff, people on zero hours contracts and self-employed who find themselves out of work.
Many people across all industries have already started losing their jobs. Our actions over the next days and weeks will determine how we live our lives for years to come. We cannot afford to take risks with either our health or our financial well-being. When we look back on the spring of 2020, we need to be certain we did everything we could for our industry, our colleagues, ourselves and even our country. This really is the end of the world as we know it, but in the long run, that might not be a bad thing.
*Originally published on LinkedIn
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