A Time for Courage
“This is not a time for ideology and orthodoxy, this is a time to be bold, a time for courage.”
Rishi Sunak, Chancellor of The Exchequer – 17th March 2020
It is day four of ‘Working From Home’ and, like many others across the country, the living room has become my new office. This is a concerning time for everyone and uncertainty abounds. In such situations, we look to government for guidance and support, not least in respect of how businesses can survive with everyone staying home.
Rishi Sunak, our new Chancellor of the Exchequer, has been thrust into the spotlight and I have been monitoring his performance this week very closely. On Tuesday he delivered a financial package to the nation aimed at supporting business through this challenging time. He was clear, composed and coherent. His call for courage reminded me of the advice I have been giving to clients in the cannabis sector for some months now. Courage is required to be successful in the cannabis industry. Now courage will be required by all businesses just to survive the next few months.
On Wednesday, the Chancellor was further grilled by the Treasury Committee and it made for compulsive viewing. The first thing that struck me was that he was clearly across his brief, even when pressed on the finer details. Secondly, he actually has a personality. He appeared genial, competent, and dare I say it, human. When was the last time you could attribute one of these qualities to a British politician, let alone both.
Business owners are understandably distressed at the current situation. Whilst public health is the priority, the wellbeing of the economy comes a close second. The UK will cope, of that there is no doubt, but we have to make sure that business survives and with it the welfare of our work force. To assist our clients, I have assessed the Chancellor’s proposals to see where business owners (whether in the cannabis sector or not) can access government support and funding to keep things going during this difficult period.
The package comprises of £330bn in loans and £20bn in grants, set out in the coronavirus emergency fund. Here are the headline measures:
- Extension of the business rates holiday.
- New lending facility with the Bank of England to provide “low-cost, easily accessible” commercial loans to larger businesses.
- Extension of business interruption loan scheme.
- Funding grants of between £10,000 and £25,000 for small businesses.
- Three-month mortgage holiday, for those in financial difficulty due to coronavirus disruption
Initially the business rates holiday applied only to companies with commercial premises and a rateable value under £51,000. This has now been extended to all businesses and starts in the next financial year (April 2020) and lasts for one year.
The Chancellor has promised £330bn will be made available by government-backed loans and guarantees for larger businesses. These loans should be easily accessible and made on relatively attractive terms. The aim here is to ensure that businesses can access these loans with as little red tape and collateral requirements as possible.
A second scheme, specifically for medium-sized businesses, has been extended. The business interruption loan scheme means that up to £5 million can be borrowed with no interest due for the first six months. The Chancellor was at pains to stress that business owners should hold fire from making redundancies. Instead they should look to these loan schemes for assistance to weather the storm.
Small businesses will be able to claim a government grant of up to £25,000. There has been a lot of concern about whether insurance policies would pay out in relation to coronavirus related disruption. The Chancellor confirmed that the government expects insurance companies to pay out but the grant is available to ease cash flow concerns until claims can be processed.
The three month mortgage holiday is a welcome proposal. If a household can demonstrate financial hardship due to coronavirus related disruption then mortgage lenders will grant a moratorium on a mortgage for up to three months. There will be a fast-track system for approval. The unpaid interest will still be recovered later, but individual credit ratings will not be affected.
What more could the Chancellor have done? A number of business owners have asked why not provide a VAT and PAYE holiday, like some other countries have. This is in the government’s control and would provide immediate relief to businesses.
What about employees? All of these benefits have been directed at business and very little support has been offered directly to workers. The Chancellor dealt with this issue at the Treasury Committee hearing:
“The reason we target support on businesses is because ultimately we need to help businesses preserve cashflow and therefore preserve employment”
Why loans instead of grants? Businesses will still have to pay a loan back and many will be reluctant to get into further debt. The Chancellor addressed this too:
“As helpful as giving a cash grant is, we do not have any control over how that money is spent. How do you know they are going to do something you want them to do and pay people's wages rather than do something else with it.”
The suggestion being that a loan will encourage businesses to work hard to continue so they can pay the loan back, whereas a grant may be seen as ‘free money’.
Does it go far enough?
There will be more to come. The Treasury will have to act to save some industries and you can expect to see sector specific bailouts announced (airlines and airports, for example). Workers will need further reassurance, particularly with substantial redundancies already occurring, and I expect further positive announcements will be made in the Chancellor’s address later on today.
He still has a lot to do, but if the Chancellor can guide the economy safely through the next few months then his reputation will be substantially enhanced, perhaps paving the way for a move next door one day.
If you are concerned about what government assistance your company can receive, whether you are in the cannabis sector or not, please get in touch with me or my colleagues at Ince. We won’t ask for substantial fees in the short term. We would rather assist you to get your business into a position where it is stable and sustainable now, so that we can develop a long-term relationship with you.