The epidemic has created a deep division in the economy between prosperous businesses and those facing existential questions about their future for 12 months.
Previous camps have businesses that thrive in e-commerce, logistics, and digital communications, serving people who need to live and work at home for months. However, there are more things that can never recover.
In the UK this raises serious industrial policy issues. This was reflected in the Prime Minister’s attempt to create a budget this month to support small British tech companies facing headwinds for the first time since Britain left the EU.
One of the most interesting proposals, along with a review of areas like technical visa plans and R&D tax credits that will facilitate bringing skilled workers to the UK, was the new £375m plan to invest in promising tech-centric companies.
Future Fund: The groundbreaking plan will add more than £1 billion the government has already invested in more than 1,000 startups in the form of convertible loans, leaving dozens of stakes in small businesses across the UK.
However, 1.4 million tech and non-tech companies forced to seek government support, but commercial Covid loans, face a far more uncertain future. After months of limited or no trading, they are now full of debt that cannot be converted into equity.
The risk here is that not only these companies will fall, but the Covid limit for insolvency has so far kept the failure rate low, and how many will remain’zombie’. You can just cover your debts and you can’t invest. Growth for the future.
Ironically, many of these debt-bearing businesses would have been viable and profitable prior to the pandemic. On the other hand, any business that the government intends to stake through future funds will not benefit for the time being and is likely to fail completely. .
Many struggling businesses have entered the epidemic with little safety nets as few small businesses can carry around with extra cash. Brexit also tied them to bureaucratic tapes and extra costs at times they couldn’t afford.
The government is at risk of competing with private sector capital and paralyzing small businesses.
To solve this problem, the government seems to have fallen into the same mindset as venture capital funds. SMEs are largely ignored and look for high growth companies.
But if you put hundreds of millions of dollars more into tech startups, you risk breaking small businesses by competing with the capital barriers already available in the private sector. The UK has long been an investment destination for VC funds. Even if the prime minister, a former hedge fund executive, wants it, the government doesn’t need to intervene here.
Future Fund means gambling in itself. That’s because venture models are designed to help you find needles in the haystack of technology. But bigger gamblings are failing to help better businesses in areas that have been hit hardest by the epidemic, such as hospitality.
While important, there is more to the economy than companies that develop data-driven products. And such companies are not the biggest employers.
Not all growth stories are in the tech sector, as the FT 1000 rankings of Europe’s fastest growing companies show. The top 20 companies include warehouse builders, store employees, and manufacturers of trendy reusable water bottles. They are far from the life sciences, quantum computing and government-advocated clean technology sectors.
It’s not wrong for the UK government to support startups, but the economy needs to be considered in the round. A good place to start is to reboot the country’s industrial strategy to support the digitization and climate agenda and consider where the UK needs to focus.
More broadly, governments should focus on supporting the growth framework of all enterprises by developing a rational tax regime, supporting regulations, easy access to competent workers in the EU, and developing digital infrastructure.
Additional support should be considered to support the slowly emerging sector and job creation at Covid.
At the same time, the government can do more to support institutional funded recovery funds, which allows businesses to convert part of their forced debt into equity.
Without constant help, small businesses and jobs struggling to get out of the epidemic will be brutally kicked out.
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