Why small businesses in supply chains matter too

Tens of thousands of people who work in Britain’s hospitality and leisure industries face a desperately uncertain future as the government imposes tighter restrictions to curb the spread of coronavirus. The closure of pubs and restaurants is the most visible sign of the economic damage these restrictions wreak. Yet further harm is being done out of immediate sight. The hospitality and other affected industries have long supply chains that face an equally bleak future. For every pub or gym that has to shut there will be multiple suppliers, many of them small businesses, that have lost a customer.

The predicament of many of these businesses is made worse by the fact that while they have been hit by the ripple effects of the restrictions, most are not eligible for financial assistance, as they have not directly been ordered to close. Pubs and restaurants in areas designated as tier 2 can remain open but inevitably face a big dent to their custom as people are only allowed to go out with members of their household. As a result, some are facing 30 per cent to 50 per cent reductions in trade.

Behind every big business are many smaller businesses. The new restrictions have highlighted the gaps and anomalies in the government’s support measures for small enterprises — in hospitality supply chains and elsewhere. Before Covid-19 struck, close to 6m small businesses employed more than 16m people in the UK. They represent 99 per cent of Britain’s private sector companies. Many that survived the national lockdown imposed six months ago will not endure a second or third series of restrictions. An endless drip-feed of government support for those whose business model has become untenable is not the answer. But policymakers must recognise the role that small businesses play in the wider economy — both economically and socially.

Government support during the first wave of the virus, in the form of emergency loans, business rate relief and the self-employment income support scheme, helped many to survive. There has also been a huge demand for local discretionary grant schemes and bounce back loans, though the latter have been mired in controversy after banks retreated from the scheme.

Chancellor Rishi Sunak now needs to consider more support to prevent what is already a serious economic setback becoming a prolonged slump, triggering mass unemployment. That does not mean blank cheques, but Mr Sunak does need to widen the availability of what has already been put in place, prolong schemes where needed and consider including groups that have previously been left to fend for themselves.

The self-employed have been among the biggest losers with many falling outside the criteria for the self-employment income support scheme. Limited company directors paid via dividends have never been eligible. This should be reconsidered but with appropriate restrictions in place. Similarly, the new job support scheme should be made available to the widest possible range of employers.

Diversification grants could be offered to help stable businesses find customers in sectors that are less affected by the virus. Consideration should also be given to improving welfare support. Larger companies, too, have a role to play. Their executives should recognise that, in a crisis of this scale, it makes business sense for them to help critical suppliers survive. Not every small business can — or should — be saved. But support measures that help to stem the inevitable flood of redundancies will strengthen the eventual economic recovery.

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