I was talking to an MP yesterday about the government's business support schemes for business, and was comparing them with the German scheme I reviewed here yesterday.
The MP was despairing. Not only was he being overwhelmed with constituency caseload, because people are so frightened for their individual futures, he was also having to deal with significant employers in his constituency, many of whom think they are very close to bankruptcy.
The despair amongst businesses at the supposed bailout remains enormous, apparently. They have applied for loans. Under the first draft scheme, which was inept, they had to climb through impossible hoops. Access to government money was only possible if they were rejected for commercial funding they knew they would never get. And so they failed. As they also did because they could not deliver the required personal guarantees to satisfy the bank.
Under the new scheme that first hurdle, of having to make two applications to get anywhere, is removed. The revised scheme also prevents a bank seeking personal guarantees. But applicants still face further near insurmountable hurdles. Right now they cannot make a business case for a loan in an economy that is impossible for anyone to predict. In that case the bank has to reject them. And, in any event, the banks have spent so much of the last decade reducing their frontline staff, and even more so those with any training in the decision skills to grant loans, that the banks literally have no way they can handle the situation they are now facing, the job they have been given is one they cannot do. And so access to loans is nigh on impossible to achieve.
The result is that the MP is seeing large numbers of companies likely to fail soon.
And this has knock on effects. Their furloughed staff are no longer furloughed if their employer goes bust. They are unemployed. And their crises only get worse then. Sunak has created a vicious downward spiral right now.
The Germans have shown the way out of this. Their loan scheme for small and medium sized employees is of a fixed proportion of recent turnover. It has a fixed interest rate: no negotiation is required. It has fixed decision criteria: the business must have made a profit once in the last three years. It is 100% government backed. The application is online. The payout is expected to take days, at most. It will work.
German small business might survive as a result.
In the UK ours won't.
The Tory party is failing business very badly right now.
Sunak needs to reform his loan scheme now. The Germans have an off the shelf package he could borrow. He should tell the Governor if the Bank of England to deliver it, or resign. The liquidity crisis I have been predicting for the last month is about to hit. There is no time left to wait.
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Just re-watching the video of Boris Johnson telling the nation that shaking hands with coronavirus patients in hospital was fine provided you wash hands afterwards at some undefined interval really says it all about the competence of this Tory government! Of course I feel sorry for Boris Johnson’s plight but he was never ministerial material nor are any of his ministers. There’s something badly wrong with this nation that so many voters saw fit to elect this government!
https://www.independent.co.uk/news/uk/politics/coronavirus-boris-johnson-positive-test-health-advice-shaking-hands-hospital-hancock-a9430231.html
This just reinforces my view that governments just do not understand how business works. Their heads are full of “policy” thoughts that some poor civil servants have to try to implement, and so you get what John Seddon calls the break/fix,break/fix syndrome. This leads to continuous corrective activity rather than continuous improvement and adds greatly to costs, rather than VFM.
Politicians do not get what every good business leader gets, i.e. the vital importance of implementation planning.
This pandemic has exposed this weakness in the worst possible way, i.e. lack of planning, supply chains stretched to breaking, no scenario planning or an options analysis (remember Kennedy’s five options in the Cuban crisis). The methodology remains break/fix, accompanied by dithering.
PS Why do you rate Jeremy Hunt, the man who wrecked the NHS?
I don’t rate Hunt
He’s just the least worst option. Look at the rest
Hancock has a level head and is concise but I believe that it’d be unwise to change the health secretary in the middle of this pandemic. Ken Clarke and other moderates are not in parliament any more and Sajid Javid is IMO too fiscally conservative, based on recent comments (early March I believe). Hunt was honest but also unpopular with certain Tory members because he said he may have to see an extension from the EU to finalise the withdrawal agreement with them and with parliament, although he was keen to get a deal passed
At last someone else mentions John Seddon!! Yay!
I love his ‘making the wrong thing righter’ description for most of what Government does.
I think that we have to realise that the elite in this country are elite more likely because of finance or that they are already from wealthy backgrounds and not because of building up businesses from scratch which would give them a more grounded attitude, more understanding.
Which means of course that too many of them are out of their depth.
But when the engine of any party of Government is ideology, why would you need ability or experience? And the same can apply to the Left as well.
‘Tis a pity.
PSR
We have exchanged before over Vanguard’s brilliant work. I think Labour could have had someone with the qualities you are wishing for: Barry Gardiner, the most well-rounded and accomplished of all the MPs. His cv is mighty impressive and his performance with TV interviewers just as good.
Sadly, inexplicably, he as been fired and Miliband introduced, while Emily Thornberry gets his portfolio. I am beginning to lose my socialist hopes.
Barry Gardiner?
Really?
Wow……
Germany and it’s government are obviously under no illusions with respect to the seriousness of this situation.
Would I be flippant to suggest that when, during the referendum campaign, our PM uttered the expression “F##k business”, rather than telling business to “Go away”, he was actually pointing to his hard Brexit ambitions, that Covid-19 has, for him, brought forward?
The political climate is unlikely to lead to a Government of national unity ant time soon. However, additional talent in cabinet should be considered now. This crisis has a long way to run, and a Prime Minister can make cabinet appointments that do not have to be conservatives, or even MPs themselves. Sadly, with the PM absent we risk entering a power vacuum at the worst possible time for the country. It is hard to see a way out just now unless Boris makes a speedy recovery.
UK “structures” are being tested & found wanting at every level. This is a direct consequence of 40 years of tory/tory-lite rule.
& elements in media are still attempting to deflect blame. That cretin Charles Moore was gibbering on in the Torygraph about the virus crisis being the fault of the NHS.
The appointment of an idiot to head the BoE shows the continued ineptitude of the Tories – a speak your weight machine has more sense than Andrew Bailey.
Given the on-going collapse of the economy – at what point do Uk citizens (or would that be serfs & forelock tugging peasants?) do something? But what?
& as for her majesty’s loyal oppostion – apparently they are going to “work” with the government – which is interesting if there was “a government” & if it was doing anything apart from reacting on a day to day basis – or indeed – like a headless chicken (the head in question being in hospital & likely to be hors de combat for days if not weeks – perhaps this is good from the point of view of Blojo not making a bad siturtion even worse – at least now we don’y have to listen to stale jokes).
Working on the basis that the “lock-down” continues for weeks, it is an open question of how much will be left of the Uk economy.
Not to worry – Brexit beckons – sunlit uplands & prancing unicorns – exposed for the nonsense it always was – instituted by Tory idiots – who remain in charge. Doesn’t look good does it?
Still we have Mrs Queenie giving a message of hope. Here is how the continentals covered it – I have done a BTL safe in the knowledge that the crime of Lèse-majesté does not extend to where I am located. https://www.euractiv.com/section/politics/news/well-meet-again-queen-elizabeth-invokes-ww2-spirit-to-defeat-coronavirus/
With Dominc Raab now supposedly in charge things are not looking bright. He is a hard line free market fanatic and a Brexit fundamentalist. He will not look on with any enthusiasm for direct monetary finance for the government which is vital as you point out for business survival in this crisis. His dithering over the return of British citizens trapped abroad is not a good omen. Also ambiguity about his constitutional position as the ultimate decision maker is bound to sap his confidence and competence until Boris Johnson is released from St Thomas’ Hospital .
Just to sober this up, the odds of a man in Johnson’s condition coming out of ITU alive are 1 in 3.
So, what is the contingency plan if BoJo pops his clogs? Given the headless chicken performance so far, any sensible company/ individual should head for the exit. Can’t do that at present either.
Just gone through the experience of claiming small business Grant on the local council website. I w spare you the problems keying the data in and the challenges of uploading files or indeed communicating with the local council. If we are lucky in a few days or weeks we will get a payment or have failed to qualify. One of the qualifications seems to be your business is registered with companies house. I honestly believe ignorance of small businesses, self employed, sole traders real life status etc is a root cause and the administration of the scheme betrays more worries over wrong payments and fraud than it does speed of help. The payment when it arrives will be welcomed but the damage to the business is huge and rebuilding the business will take a couple of years probably. These support arrangements will not ensure survival or indeed a viable business as things improve. Not enough serious practical thinking has gone into this though no doubt well intentioned.
Agreed
Very insightful observations, thank you. Our self employed small business client are struggling during this crisis. I`m doing more advising than earning. It`s hard on those who pay dividends rather than draw a substantial wage with HMRC solution on offer.
Not that I dispute any of this. However wouldn’t an exit strategy be just as much help? If not more so.
There is much to be said about the government scheme which seems to me, being charitable, to be wildly over-thought. But without a real exit strategy it’s all moot.
Looking at the news and the Internet an alarming number of people seem to think that the country can be under long-term house arrest and that lockdown ends the virus.
Every business in the UK has an FD or an accountant that can calculate a break-even turnover (benchmark) – say to the end of December 2019 – that excludes a deduction for any “excessive” withdrawals by business owners (dividends or drawing by partners, sole traders etc).
This would highlight the minimum turnover required for a particular business to meet it’s obligations to an existing business structure.
If at the end of March 2020, it can be demonstrated that turnover has fallen below the breakeven benchmark to end of December, this turnover gap (less any reduced variable costs) will highlight the loss that the business has suffered due to pure trading – as opposed to the demands of business owners. Without intervention, and once available reserves are exhausted, Richard is right, businesses will cease to exist on a mammoth scale.
The question then arises, how should government intervene to plug this gap?
Seems to me that the banking system is the last place to look for salvation. Loans are liabilities. Businesses don’t need more liabilities this will simply propel them at a faster rate towards insolvency. What businesses require now, those that have experienced a significant drop in turnover is a support grant. In my opinion this should be treated as a potentially repayable receipt. If grants received sustain a breakeven result no grant repayment would be due. If a subsequent lift in trade disclosed that grants received contributed to profits, then to that extent grants would be repayable.
All of these “adjustments” could be catered for by making fairly basic changes to corporation tax and self-assessment (for partnerships and soletraders) tax returns.
Why Sunak (more likely his Treasury or number 10 advisers) thinks that the way to sustain business is to increase their liabilities at a time when they are experiencing catastrophic reductions in turnover beats me. Its like offering a drowning man or woman a concrete block.
I entirely agree Bob
The economy will not cope with this state of affairs. I mentioned to Richard a little while ago the self employed were a key factor getting very little support in this and they could be paid via their accountants very quickly (Richard I’ve looked into some of the details with my accountant and this could be done). The HMRC operation could then use the army of accounting firms small and large to make payments to their self employed clients on behalf of HMRC for a small processing fee and sweep up the essential record keeping via self assessment. All it needs is the will to be bold…
I’m sorry, but I simply do not agree with your accountant
And vast numbers of the self-employed do not have accountants, of course.
What about them, or is this to be discriminatory?
Richard, I simply do not know the numbers who do not use an accountant, most that I know do be they taxi drivers, builders, plumbers, IT consultants, B&Bs, etc do you them.
I grant you some people operating via digital platforms or employment agencies (a loose phrase but I will not go there though they could be used too in my view to make payments) might not but I honestly thought these numbers were not that significant. The idea isn’t meant to be discriminatory god knows how long people will have to wait without any money coming in its dreadful business causing unnecessary worry and hardship. I know of self employed tradesmen who have turned down work partly out of being fearful of catching the virus but often also because they believe if they do a single invoice while trying to claim for the lockdown period it will count against them. These arrangements are not just failing to provide support quickly enough they are stifling economic activity too.
There are 5 million self employed
It is thought no more than 2 million use accountants
That’s why this will not work: sorry
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