Earlier this week Rishi Sunak vowed to do 'whatever it takes'. Today we have set out what needs to be done to ensure British businesses survive coronavirus. Sam Dumitriu (Research Director) and Sam Bowman (Adviser) have set out why these exceptional circumstances call for exceptional policies.
If you’re not going to read the whole thing, here are four key passages:
“Solvent businesses may still go bust without additional liquidity – government-backing for business loans is one solution to this, so that they can access credit. But the problem is much bigger than that. The financial hit of several months of low or no revenues, while overheads such as wages and rent still need to be paid, will push businesses that would otherwise have been solvent into insolvency. This is not simply a credit issue – the overhang of those costs means that as we come out of the downturn, many would struggle to pay back any debts incurred.”
“We should be prepared to bail out small businesses – provided they keep their workers. Steven Hamilton and Stan Veuger have a novel proposal targeted at SMEs. Loans would be issued to cover any fall in revenue experienced by a participating business relative to previous years (with a benchmark level to be determined for new businesses). However, unlike the Business Interruption Loan Scheme announced by the UK Government, businesses would also receive a tax credit equal to the full loan amount including interest, provided that the business maintains its full-time-equivalent (FTE) payroll through the duration of the crisis. In effect, if a business does not lay off its employees they do not have to pay the loan back. The plan would also cap the net income (after tax credits) of businesses receiving the loan at a given percentage of previous years’ net income, to prevent companies from making windfall profits by cutting variable costs."
“A solution that may be easier to implement is to essentially ‘hack’ the statutory maternity pay system and apply it to all workers. The Resolution Foundation is proposing a Statutory Retention Pay (SRP) scheme in which people who don’t have work to do stay formally employed by their firm, but with a significant amount of their pay covered by the state. If the rate were set at 66% (and 80% for workers earning less than £189 a week), then it would cost £8bn if a million workers took part in the scheme. But we should be prepared to borrow and spend much more than that if necessary. The scheme has parallels with the Danish response to the virus, where employers are able to grant a paid leave of absence to their workers. The government will pick up 75% of their salaries, with the employer paying the rest. At the same time, workers agree to give up entitlements to paid holiday."
“Startups that are not yet bringing in revenue will need targeted support as they approach the end of their funding runway. These are ill-suited to taking on debt, such as the Business Interruption Loans, and are unlikely to benefit from rates relief or grants, as many use co-working spaces. Startups will be responsible for a large proportion of job growth once this is over, and cannot be overlooked. Two measures should be targeted at them. First, grants aimed at small businesses that don’t pay rates should be extended to startups in co-working spaces. In lieu of accurate valuations, grants could be limited to at startups with fewer than 10 employees. Second, instead of loans the British Business Bank should back convertible notes of up to £500k for early-stage startups. The notes would convert to equity at a later date and avoid the problems of issuing loans for pre-revenue innovative businesses.”
Read the whole thing. Share it widely. These policies will do a lot of the heavy lifting but this isn’t meant to be the last word on policies needed to support entrepreneurs – and it won’t be ours – so let Sam know what else you need during this most challenging time. (Please see below about how to ask specific questions about government support).
Innovators vs, the virus
We may live in interesting times, but many incredible entrepreneurs, inventors and scientists around the world are fighting back.
Dr Anton Howes, our new Head of Innovation Research, has explained exactly how. It covers a lot, including:
Seegene, a South Korean company using artificial intelligence to rapidly identify a test for the virus;
The Kaiser Permanente Washington Health Research Institute’s 6-week trial of a prospective vaccine with a cohort of (brave) healthy adult volunteers;
Scottish whisky distilleries and London gin-makers shifting production to manufacture sanitiser;
Crowdfunder.co.uk, which with support from Enterprise Nation has opened up their crowdfunding platform for free to businesses affected by Coronavirus;
Dare to Care Packages (which we’re a Partner of), which is helping to link up healthy people in London with those who may need deliveries of essential supplies while they are self-isolating;
Bubble, which is supporting hospital staff and other key workers to find vetted babysitters while they go to work.
Read it and share it. We all need a healthy dose of inspiration. And let Anton know of any other amazing work that’s being done in the UK and around the world.
In fact, the Government needs your help. They’ve set up three dedicated emails if your business feels able to support their efforts:
On vaccines, email: Nervtag@phe.gov.uk
For Ventilators, email: ventilator.support@beis.gov.uk
Offers of innovation and tech, email: DNHSX@nhsx.nhs.uk
And applications for funding to the European Commission are welcome until 5pm today from startups and SMEs with innovative solutions to tackle Coronavirus outbreak.
Any questions?
We are asking the Government and supporting bodies the questions you want answers to. A lot of this is feeding into our thinking about what's needed so keep them coming! Below cover the main thrust of the many I’ve received so far.
Questions on the Coronavirus Business Interruption Loan Scheme
How will the Coronavirus Business Interruption Loan Scheme differ from the Enterprise Finance Guarantee (EFG)? Will it be less bureaucratic and easier to get?
Are loans appropriate for pre-revenue startups?
Has any modelling been done on how many applications are expected from launch next week and how long is it going to take to work through them all?
What constitutes a valid case for a loan?
Will the British Business Bank be too risk-averse?
What is the timeframe for repayment of the loans? Initially one year was mentioned, but the Chancellor in front of the Treasury Select Committee spoke of a ‘long term basis’.
Questions on other policies
The government wants business owners to keep on employees, but is this really a long-term strategy when it is expected to be funded by business borrowing?
What about businesses working in the supply chain of businesses severely impacted by this?
Are businesses that aren’t paying business rates being left out?
Do co-working businesses and the businesses themselves need to be better supported to help with the eventual recovery?
Would it help if tax breaks, such as SEIS / EIS, were made temporarily more generous?
What support will be offered to the self-employed and freelancers?
Will a lockdown limit the ability for key employees to go to work?
Stay updated with how policy changes might impact your business, sign up to our essential Policy Updates. You can read previous ones here.