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Jenny Tooth looks forward to economic recovery as lockdown eases

As we emerge from the full force of the crisis, we are all now turning to the prospects for economic recovery and what shape that will look like in the months ahead. The Chancellor’s summer statement last week announcing his ambitious £30bn package for boosting employment as the furlough scheme is withdrawn, may go some way to face the most urgent challenges with a strong focus on addressing the needs of young people who have been especially hard hit, as well as the regions outside London and key sectors. Rishi Sunak’s creative measures to kick start consumer spending in areas of hospitality, including his “eat out to help out” voucher scheme together with six months VAT cut may however be too short lived to have any long term impact on employment in these sectors. Only time will tell if these latest measures will be effective in shoring up the huge leakages of jobs now starting to become a reality across the UK. Indeed, since this announcement a significant number of corporates have announced plans for job lay-offs, whilst latest ONS data shows that that roughly one third of the UK workforce is being supported by one or other of the governments’ support measures. At the same time the OBR expects that £1.3m on furlough schemes will ultimately lose their jobs and the British Chambers of Commerce today also reported that a third of UK businesses in their survey of 7,400, would be cutting jobs, despite the new job retention bonus scheme in the next three months. We will need a sustained effort on all fronts to ensure that we can build a future economy that addresses the existing imbalances in skills and access to employment and that were so clearly highlighted under Covid-19.

Today also saw the launch of the proposals for the Recapitalisation of Businesses, resulting from the work done led by the CityUK in which I have participated as part of the working groups. The report has been drawn up in response to the impact of the important and necessary support measures implemented by Government over the past three months, but which are estimated to result in over £100bn in unsustainable debt. A significant proportion of this is likely to be carried by UK small businesses when businesses need to start repaying the £32-36bn of Government supported loans such as CBILS and BBILS in March 2021, together with other sources of loans, with a significant number unable to repay or the interest incurred. The report also highlights that 75% of this debt will be carried by businesses in the regions outside London where businesses in key sectors have been most affected by the pandemic, but where there also is much less access to equity. The report offers a range of solutions including a new UK Recovery Corporation; a Business Repayment Plan to convert the CBILS and BBILS into repayments through the tax system and based on profitability; Business Recovery Capital to convert loans into subordinated debt or preferred share capital or growth Shares, and to provide shares to rebuild cash and invest in working capital. Overall the focus is on converting the unsustainable debt into longer term repayment solutions and creating the conditions to attract private investment.

Alongside these proposals to address unsustainable debt, clearly the other key aspect to address is the need to increase access to Growth Capital to support the rebalancing of the economy in the months ahead and to ensure that the many growth focused innovating small businesses can access the risk capital they need to successfully scale. The level of growth capital has been severely reduced these past months with reported 40% reduction in capital available. Angel Investment is a key part of the growth capital pipeline and as we are all aware, the situation has not only been challenged throughout Covid-19 with a significant decrease in available new investment capital, but also the pre -existing lack of access to angel across the regions and challenges of access for key sectors as well as for women and ethnic minority entrepreneurs. I am working with a number of key players to look at the Future of Finance and to develop solutions to increase the pool of angel investment across the UK and with a view to redressing these systemic imbalances in access to equity.

I will keep you informed of these developments as they progress, but there is no magic bullet and a variety of solutions and measures will be required in order to ensure a sustainable economic recovery. A strengthened angel and early stage investment ecosystem will be a vital part of this recovery and we will continue to work on behalf of our community with Government and all key players to restore and build this in the months to come.

UKBAA

By UKBAA16 Jul 2020