Next Wednesday the Chancellor will deliver his first proper Budget since the start of the pandemic nearly a year ago; since then, we have had what has amounted to a number of discriminatory and uncoordinated announcements aimed to protect some jobs and some businesses.
You might think that, with all that time, the Treasury would have been able to work out a sensible recovery plan. If so, think again.
Last night I watched the 10 o’clock news (against my self-imposed rule) while I waited for Match of the Day to begin; apparently we still have to find a way to pay for the spending to alleviate the effects of coronavirus (we don’t, its been paid for), repay government borrowing (why would we?), and reduce the ‘so-called’ deficit. Kenneth Clarke, a former Chancellor, even opined that inflation will increase interest rates which means the interest on public sector borrowing will become unaffordable.
The chief economist at the Bank of England thinks that there is about to be a spending boom as soon as the lockdown is lifted. But the distribution of saving is heavily skewed, with most being amongst those with the lowest marginal propensity to consume because they are already wealthy and can consume all they want anyway. 80% of businesses have taken on borrowing during this crisis. They have a mountain of debt to service.
The problem is that markets are being influenced by this complete nonsense. The chance of inflation is low. But so too is the chance of economic good times. The end of furlough is going to be bad news for many. Across the UK, there were 2.32 million women and 2.18 million men on furlough at the end of January, with the highest take-up rates for those aged 18 to 24. Official figures last week showed the jobless rate increased to 5.1% in the three months to December, representing 1.74 million unemployed. Unemployment is going to increase.
For those businesses with poor balance sheets the reopening of the economy is going to be tough. Many of these will be amongst the 3 million self-employed and director-owned companies who have been deliberately excluded from the government’s support measures.
Historically, more businesses fail as the economy recovers from a recession than in one. The economy is not in for a smooth upward ride. The worry, of course, is that the Chancellor will base policy next week on this nonsense.
Which of course presents a dilemma for the owners of small businesses; who to believe and what to do?
Fortunately the answers aren’t that difficult to find. Ignore most of what is being served up by these commentators (and fueled by an unquestioning media) and ask yourself what is really happening in your market, community and sector. If the pandemic has achieved one thing, it has been to massively widen the differences in society, the economy and businesses. There is no longer an average and, anyway, averages are not a basis for forecasting.
The differences between industries and business models that we understood intellectually before the crisis have now become huge gaps, separating the old reality from the new one. The economic shock set off by the pandemic has accelerated and intensified trends that were already underway. The result is a dramatic widening of the gap between those at the top and the bottom in virtually every industry sector.
Along with this accelerated pace of change, however, comes a unique opportunity to make big strategic moves, take risks and be bold. Whatever the Chancellor does on Wednesday will have much less impact on your business than the strategic decisions you take this week; just don’t expect his help.