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Small business debt levels double since start of pandemic


Napoleon was famously said to have said that Britain is a nation of shopkeepers. Not the most damning of insults. Perhaps he should have called us a nation of debtors; considering a statement from the bank of England last Friday, that may be more accurate.


Small businesses in debt are now more than double the amount before the pandemic, which was not exactly an inviting climate for small businesses anyway. Small businesses today are famous for failing, for the nation of shopkeepers we are no longer. Today it’s big businesses like Amazon and Tesco who rule the roost. Instead of being the backbone of our economic system, these small and medium-sized companies (or SMEs) make up two-thirds of the UK’s £79 Billion corporate debt increase.


The government being it's usual spend happy self has announced a so-called “bounce back loan” where SMEs can apply for up to £50 thousand with a 100% guarantee of not having to pay interest for the first year. Perhaps this might save a few and delay the inevitable for others, but for many, it will just make them even further in debt. Rather, the Government should consider allowing these businesses to fail and allow other, more efficient ones to take their place.


As per usual, the SME community is in an uproar over government cutbacks to things such as the furlough scheme which ended last Friday, claiming that money allowed them to continue functioning. But why do they expect the taxpayer to fund a group who are, in the majority as of 2020, estate agents and food suppliers? If these businesses fail, more will come and take their place, it isn’t likely to be a massive deal to the majority of people in the UK.


Perhaps in the 1940s to 80s, when most of these shops were the only food source in the village, this staggering level of debt might have been of more concern, but today, when most of us buy our food from Tesco or Lidl, who cares. Big businesses have surpassed corner shops in importance to the everyday people of this country, and that’s for the best. Big businesses rarely end up in this much debt, and only this year due to extraordinary circumstances have struggled to stock their shelves. They’re simply more reliable.


A nail in the coffin will be the expected rise of 4.0% in inflation, and the bank of England raising interest rates. This will make getting loans harder to start new businesses, and rising inflation makes commodities more expensive for the customer. Particularly in small businesses, where prices are often higher, this could prove to be a death sentence. Worst of all, it’ll affect everyone, making food prices go up even in the major supermarkets.


As we recover from the pandemic, nothing seems certain. However, the government seems to forget the power of the markets to bounce back, to find solutions, and eventually, this recession will end. It’s their job to get on with making government work more efficiently and intelligently, to help capitalism be compassionate. But, at the moment, they seem determined to throw money at failing projects, our money. It’s time they became more practical, and have the Conservatives go back to being the safe pair of hands on the economy.

 

Written by Adam Caudle

Research compiled by Steven Li

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