The FT notes this morning that:
Close to 6m small businesses employ more than 16m people in the UK, generating £2.2tn in turnover last year and often operating far from the public eye. But many are increasingly desperate as the pandemic has continued, throttling sales across the country and sucking dry their limited cash reserves, even with the gradual easing of the lockdown.
UK Finance, which represents the UK's banking sector, found that a fifth of small firms had less than one month of cash reserves left in May. A quarter of owners had been forced to use their savings to stay solvent; almost a fifth said they were likely to cease trading or may not survive.
They add:
Companies have taken about £50bn in guaranteed loans so far. The Office for Budget Responsibility estimates that this could rise to as high as £76bn across the loan schemes alone, with about three-quarters destined for the smallest businesses in the country.
And also note:
One in six smaller firms now relies on government-backed debt.
Whilst adding:
Referring to similar programmes during the financial crisis, the OBR assumes that up to 40 per cent of bounce back loans could default. Banking executives warn that the loss rates could be even higher. Thousands of companies face being pursued by their lenders for debts they cannot afford to repay.
Despite which they say:
Economists warn that the UK could see more than 3m people unemployed – a level it has not witnessed since the deep recession of the 1980s.
At which point I think it time to intervene in this discussion.
First, I have no doubt what is being said about small businesses is true: it is in deep trouble. I have seen saying it would be since the beginning of March.
Second, though, note that the figure of 6 million small businesses includes a great many micro-entities, many of which tax records show to be part-time and pursued alongside employment or retirement. I am not dismissing that, but they distort the data here.
Then note that most smaller businesses of any substance, and the vast majority that employ people, are run through limited companies, and according to HMRC corporation tax data there are only about 1.5 million of these that trade. Discount those in groups that really have financing rather than trading functions from that total (and there will be many tens of thousands of these) and we are talking about maybe 75% of most small employers in the country having had a bailout loan. And of those banks think 50% may not be able to repay their obligations, meaning that even if there is ‘soft touch' debt recovery they will be going bust.
And yet although these companies that might fail might employ 6 million people in all apparently unemployment is not going to be more than 3 million in total, a figure which the claimant count suggests is fast being approached Even before furlough has come close to ending.
Put bluntly, this makes no sense at all. Simply extrapolating the data in the article (and I can see no reason why not: the sample is big enough in all cases for that extrapolation to be fair) and the number of jobs at risk looks to be around 6 million (16 million, times 75%, times 50%).
Not all will be lost, thankfully. I am hopeful that will not be the case. But to pretend that many hundreds of thousands of small employers will fail and somehow the jobless total will hardly increase at all - which is the view presented by this FT article - is absurd.
And on top of that you have to add on the number of self employed who may no longer have a business. I suspect that is a million or more people now.
It's really not hard to see where I get my estimate of around 6 million unemployed people from in that case, but there still seems to be a conspiracy of collective denial around this real issue we are facing right now.
I wish I knew why. The denial is preventing planning for action taking place. It is harmful as a consequence. But apparently this state of suspended disbelief that the economy might fail as badly as reasonable data implies is something the media wants to join with the government in projecting.
I hope I'm wrong. And of course, I could be. But I am not expecting to be so.
And the failure to anticipate this crisis on the part of the government really worries me. It's playing silly games on the periphery of the issue right now and giving no clue at all that it is preparing for what is really going to happen.
We suffered this failure of foresight in March. Why are we having to do so again?
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On my continuing business plan analysis I am sticking to a potential 40% redundancy rate – suggesting a 8 million figure. More and more operations are shifting to the mainland as well.
One can only hope that by playing things cool, the Government is just trying not to panic because it wants to maintain whatever market confidence there is at this time.
Or of course, they are still denial as to the scale of the problem – the good old British exceptionalism is still alive.
It’s how Cummings works, smash everything and remould the pieces in their own image. The government is completely sidelined.
Similar to this?
https://bylinetimes.com/2020/07/30/johnson-cummings-are-waging-war-on-the-british-state/
“the figure of 6 million small businesses includes a great many micro-entities, many of which tax records show to be part-time and pursued alongside employment or retirement. I am not dismissing that, but they distort the data here.”
The headline unemployment figure, whether 6 million or higher, will mask so much more misery than that. My own situation (I’m self-employed as a counsellor and trainer) attests to this. To ensure my security I have significant savings, however, all this means that I would never be counted as “unemployed”, even if my work was to completely dry up, as I cannot qualify for any benefits that would count me in this way. And there are many self-employed people in a situation similar to mine (as I discovered in a recent Guardian article).
As you’ve said before, the furlough and self-employment support scheme are masking the true extent of unemployment. I would add that self-employed people’s savings and ineligibility for benefits are also doing this. And the focus on unemployment figures is also masking the true extent of unemployment, which is not only an absolute (in work or not), but also a relative problem (sufficient work or not).
How many self-employed people burning through their savings could we add to the headline 6 million figure? How many people with supplementary micro-businesses could we add to the pile of misery coming?
And there will be many early retirements…..they will also disguise what is happening
One of my friends is doing just that. He’s furloughed until the first of October, and is then to be made redundant, with a payout that will cover his earnings until the end of the year. He’s 57 now and plans to live on his savings and occasional contract work from the contacts he has through work until he receives his first pension at 60. Fortunately he and his partner own their home outright, and have no other major expenses. He’d planned to work until 60, but has no wish to face looking for other work and experience the despair of this at a time when so many millions of others are also doing the same. This will cost him three years’ pay, which will never be officially counted and recognised as part of the economic cost of the pandemic.
I suspect many are in the same boat
Good luck to him
Obviously people fearful of losing their job are less likely to spend, so there is some sense in boundless optimism at this stage.
As always, this will quickly flip to doom when reality sets in. Hopefully the government actually have some more cards to play, and Sunak’s meal deal isn’t the best they’ve got.
I might just be my usual cynical self, but it seems likely, if not clear, the tories are trying to downplay the negative news as long as possible to prevent triggering a crisis ahead of the even greater impact of actually leaving the EU fully. No sign of any plans to reduce or prevent further harm, just pretend all’s good while kicking the can a bit further down the road.
“just pretend all’s good while kicking the can a bit further down the road”
That sounds like Tory policy in a nutshell.
It really is a mess. If you think about it when a crisis occurs like a debt bubble bursting to cause the Great Depression of 1929, or the Great Recession of 2008, or the current coronavirus pandemic countries have anxiety attacks in which demand drops and people start hoarding money in fear of the future. The hoarding is Keynes’s famous fallacy of composition it just makes the economy worse by reducing demand. So if you’re having an anxiety attack its like reverting to childhood and you need a parent around to make it all better. Since you live in a monetary economy it consequently makes sense to have a parent who can create money from thin air and without liability to others to help push up demand in the economy.
Interestingly Margaret Thatcher was always going on about people not wanting a “nanny” state around interfering in your life and this was coupled with her arguing the government has no money of its own. From what I’ve read about her childhood her father was a “high functioning sociopath” like Donald Trump’s father. Clearly the choice of the word “nanny” is derogatory meaning someone who’s paid to take care of you but doesn’t really love you. As the psychologists tell us if you don’t get much love as a child you have to turn into a defensive fortress and always be wary of anyone who tries to offer it to you (the Avoidant condition according to John Bowlby)!
Curiously, it’s often people who had nannies and who have them for their own children who decry the nanny state. I’d prefer to call it the kind, compassionate, supportive and responsible state. Who decided that the best thing to do is try to make life as difficult for people as possible. Seems like the govt has as its central purpose the maximisation of human misery. Makes me realise that the failure to explain fiat currency by govt and media is deliberate, since then people would know that poverty and deprivation are structural and deliberate, are a policy choice, the purpose of which is to ensure millions of people are forced into exploitative labour to keep a a tiny minority extremely wealthy. They would hate to have to compete with a state that was on people’s side.
Jobs guarantee required then. Simple idea, we are already used to gov’t funding furlough and most people agree with the idea of money for something
I may even have to phone in to Jeremy Vine….
Jobs doing what though?
It’s all good and well to talk of having a job guarantee, but there are more than a few problems
1. Is there enough demand existing, or readily summonable, within the state sector, to provide such a guarantee?
2. What range of skills and wages will these jobs offer? A guarantee of a job which pays a third of your previous salary is still likely going to result in the loss of your home, and all the lifestyle trappings that go with it
3. What will be the geographic split of jobs provided under such a scheme? Millions of guaranteed jobs in London and environs does nobody in the North any good at all.
Frankly, to me, a job guarantee has also sounded very much like busy work; having people do what in many cases will be pointless tasks, all to quell middle class ire at the thought of somebody seemingly getting something for nothing.
I accept that jobs will be hard to find immediately due to the number required
But I’d suggest thinking of work to do is not hard
Looking at the most recent debate now – opening pubs versus opening schools in September – what a mess we are we in.
Many state schools have done their best to provide teaching but cannot compete with private schools in providing teaching on line.
Pubs which are businesses that employ people are also in a mess – they need revenue quickly for obvious reasons.
All because the Government abandoned track and trace but also did not commit to a enabling regional testing under the guise of protecting the NHS – which it turns out was actually not protected because NHS staff have died and cancer patients, deprived of the their care, will die too. So the NHS cannot have been protected.
But worse than that, the Government did not want to commit to bailing out the country affected by a pandemic by spending the monetary power it has to address all of these problems.
What we have witnessed – including the way in which care homes were not protected – must not be forgotten.
It’s a shocking state of affairs.