Lockdown restrictions will not end next week, as originally planned, but will be extended for at least another month (see page 8). The economy will need more support to get through that. The hospitality industry will be badly hit. So will travel if most countries remain on the red or amber list. Many companies will postpone going back to the office and quite a few may cancel leases on expensive space; others will make working from home permanent. Already there are demands for the chancellor, Rishi Sunak, to step in with extra support.
Furloughs might have to be extended, rent and rate holidays kept in place, and soft loans will have to be extended to businesses that are struggling to make ends meet. Many of the existing schemes started to taper away from the end of June. It is perfectly reasonable to extend that help if restrictions remain in place. But we shouldn’t pretend that every policy from the last year has been a success, or that every form of support can simply be rolled forward for another four weeks. Instead, this is the moment to make some significant changes – and start getting it right.
1. Scrap the furlough scheme
As of last month, more than two million people remain on furlough even though there are widespread shortages of labour as the economy reopens. Many companies are calling for a relaxation of visa rules so they can bring in more workers from abroad. One in ten construction workers are being paid to stay at home doing nothing although output is above its 2019 level; a similar percentage of shop staff are at home, even though retail sales have been booming and high streets are open again. That is crazy. It is also very, very expensive for the Treasury and damaging for all the companies that can’t operate normally because they don’t have enough staff. The chancellor has already indicated that the furlough scheme won’t be extended any further. But he should go a step further and end it completely. If a company can’t reopen, then it is better for the staff who work there to be released to find a job elsewhere – there are plenty of vacancies.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
2. Start converting debt to equity
There are lots of bounceback loans available to companies that meet the criteria and the banks don’t mind offering more money so long as it is all backed by the government. But after 15 months of lockdown, many companies are already up to their eyeballs in debt. They no longer have any idea how it is ever going to be repaid. What they really need is equity investment. The government has already made a move in that direction with its Future Fund for relatively new start-ups. But it could easily extend that by offering to convert loans into equity for any business that wants to take it up on the offer. Who knows, maybe the Treasury will even end up with stakes in some valuable businesses? Even if in the end it has to write lots of equity holdings off, at least it will have saved some companies in the process.
3. Launch a blitz of legal reforms
Many existing laws were not designed for the extraordinary events of the last year. On top of all their other problems, many firms face a series of questions with no clear answers. Do staff have the same rights working from home as they did when they were all in the office? Is it okay to monitor them, and if so at what times? Should a business be allowed to insist on vaccination, or is that discrimination? What happens if someone refuses to come back to work because they are nervous about catching Covid-19? No one, including the lawyers, really knows right now. Over time, judges will probably decide. But we shouldn’t leave it up to the judiciary, nor should we leave firms in the dark over their rights and responsibilities. The government needs to make it clear what the law is. The last thing any business needs is legal uncertainty.
-
IMF suggests “refinements” to Rachel Reeves’s fiscal rulesThe IMF has upgraded the UK’s growth forecast but wants Reeves to refine her fiscal rules to avoid unnecessary spending cuts or tax rises
-
Invest like a tortoise, not a hare to avoid market volatilityOpinion Hassan Raza, Portfolio Manager at CG Asset Management, highlights three favourite investment companies
-
'Nationalisation is not the answer'Opinion Labour's enthusiasm for nationalising steel was met with approval across the spectrum. Political consensus is a sign that thinking has been abandoned, says Max King
-
Why did the government take over British Steel – and was it a good idea?The government has stepped in to take control, not ownership, of British Steel, citing national security and other factors. But does that make sense?
-
'Rachel Reeves' plan to force pension funds into UK assets won't work'Opinion Hustling pension fund cash into British assets sounds like a good idea. It would be better to make Britain an attractive place to invest, says Matthew Lynn
-
What caused the Birmingham bin strike – and what does it mean for British businesses?The Birmingham bin strike is the fallout from an equal-pay claim brought by female cleaners. That bodes ill for the rest of British business
-
A new wealth tax is a terrible idea. The rich are already being hit by sneaky taxes – Merryn Somerset WebbOpinion Ideologues want to squeeze more tax out of the rich with a wealth tax. They’re already wrung dry, says Merryn Somerset Webb
-
Why are energy bills so expensive in the UK?Electricity bills in the UK are higher than in any comparable rich country. Some blame the net-zero zealotry of the government for that. What is really to blame for high energy bills?
-
Five years on: what did Covid cost us?We’re still counting the costs of the global coronavirus pandemic – and governments’ responses. What did we learn?
-
London can lure Brexit-fleeing banks back to UK – but the City must move quicklyOpinion Many banks fled to Paris in the wake of Brexit but are now in full-scale retreat. The City should move quickly to lure them back, says Matthew Lynn
