All businesses will be impacted by the COVID-19 pandemic. Some sectors may benefit financially, while others will suffer huge losses. Those countries with more service-oriented economies, like the UK, will be more negatively affected and will suffer larger negative employment effects. The UK economy was not in great shape coming into the COVID-19 crisis, after experiencing years’ of little growth and investment, due to the uncertainty of Brexit.
While we await the official data to confirm that the UK is currently in recession it is becoming clear the Office of Budget Responsibility’s (OBR) forecasted 35% downturn in economic output between April and June as a result of the COVID-19 crisis is likely to be realised.
Early Government figures, most of which cover the period before the ‘lockdown’ on 23rd March, are just an early indication of the scale of the economic problems and associated issues we will have to face for the rest of 2020 and beyond. The new ONS Business Impact of COVID-19 Survey (BICS) has found that 25% of businesses had closed temporarily and 0.4% had permanently closed. My team in the Enterprise Research Centre (ERC) has calculated that, as part of our work for the British Business Bank, this could easily translate into the loss of 85,000 firms and 1.2m jobs by September 2020 pushing the unemployment and claimant count even higher than it is now. At the time of writing, 8m jobs in over 1m firms have been ‘furloughed’ under the Government’s Job Retention Scheme with £11.1bn claimed so far, giving an indication of the size of the ‘pause’ button on the economy.
The obvious comparison many commentators are making is with the Global Financial Crisis (GFC) in 2008-9 and the relatively quick recovery in some economic indicators such as employment and business start-up rates. But perhaps a more relevant comparison is with the scale of the economic downturn of the 1980s, with the collapse of the UK’s industrial sector. In that context, rather than seeing a V-shaped downturn and rebound as some economists such as the OBR have predicted, we could instead see an L-shape recession dragged down by a net loss of companies over a long period.
The response to date by the UK Government has been unprecedented with a series of eight or nine mini-budgets - since the official one on 11th March - to put in place a substantive package of support for UK firms and the self-employed. Overall, this assistance package could eventually cost the public purse around £330bn equivalent to 15% of GDP. However, there are still some obvious gaps and problems with the operation of particular schemes (i.e., Coronavirus Business Interruption Loan Scheme CBILS and the Self Employed Income Support Scheme, SEISS). The exclusion of 750,000 self-employed from the SEIS demonstrates there was a lack of understanding by Government of how the economy works.
It is foreseeable that we will continue to see a long, slow decline in the number of private sector firms that support millions of jobs across the economy. The next few months are likely to be the toughest period most entrepreneurs will ever experience. It is therefore imperative that problems with existing government support schemes are addressed quickly and confirmation that this support is going to be there until at least the end of 2020.
Innovation around business models will be crucial during the crisis and more importantly in the recovery phase as many hibernating small businesses seek to re-boot their business. The Centre for Growth at Aston University has been working with a number of small businesses who have been thriving in the current crisis. We have captured insights from their experiences in a series of podcasts. While developing new channels to existing and new customers is a common feature of the interviews, so is new product development, as ambitious business leaders rise to the challenge laid down by the COVID-19 crisis.
There is an important group of small business leaders in the West Midlands who are determined not only to bounce back but to thrive in the current crisis, with innovation lying at the core of their strategy. For example, the Worcester-based Little Soap Company, which specialises in organic and ethical soap products, has had the challenge of dealing with an almost doubling of demand in the last three months, due to significant demand since the start of the pandemic. While catering company, Green Sisters, has developed a full seven-day set of meal parcels for customers in isolation, as they ensure the demand for Indian snacks for people with dietary restrictions are met.
But it’s not only innovation in its broadest sense that will be crucial for the survival and growth of the small business sector. Ensuring the mental health of staff is crucial for social entrepreneur Rose Ginday (CEO, Miss Macaroon). The importance of individual as well as business resilience cannot be over-stated; something which is clearly at the core of Olu Orugboh’s business ethos (Synergy Organisational Solutions – a specialist digital innovator) and the advice she gives to her clients.
The economic outlook may be pretty dire at the moment, but the UK has an amazing set of entrepreneurs and business leaders who are stepping up to the challenge presented by the COVID-19 crisis. These businesses have revisited their value proposition and identified opportunities for them to exploit and build their brand recognition. We have the privilege of working with many of them here at Aston University, to ensure the West Midlands is well-placed to bounce back as quickly as possible from the economic consequences of COVID-19.
It is therefore imperative that going forward into the medium and longer term future, Government seeks to lay out a clear strategy in how they will ensure SMEs are supported to pull through this crisis. This includes having the right package of support in place and flexibility within that, to give SMEs the space they need to innovate, adapt and grow their business models. As we adapt to a new way of working, Government has a responsibility to ensure our diverse economy of businesses can grow and remain highly valued in our culture of consumers; who in the UK often seek to support independent business and value their creative and innovative approaches and products.
Professor Mark Hart is Professor of Small Business and Entrepreneurship.He is also Deputy Director, Enterprise Research Centre (ERC) and Associate Director, Aston Centre for Growth, at Aston Business School.