Covid-19 has undoubtedly been a rough period for several sectors of the economy. Industries within hospitality and tourism have suffered a lack of demand, prompting many workers within these industries to be placed onto the Furlough Scheme.
With 11.7 million employee jobs covered since its inception, as of August, the most affected sectors were the arts and entertainment sectors, with 12% of total claims. Coming up was the accommodation and food sector which had 11% of claims.
Many of the businesses within these sectors are quite small. Family businesses such as corner shops, a local bakery or butcher, as well as pubs, have suffered massive losses in revenue as for these firms to make money, they need to get people through the door.
Unfortunately, due to the several lockdown restrictions which we have suffered, as well as the low consumer confidence, it was difficult for these firms to stay afloat, in fact, in January of 2021, the London School of Economics and Political Science predicted that more than 900,000 small UK businesses were at risk of falling by early April.
With that figure being 15% of all UK businesses, it is worrying as collapsing firms would have placed more pressure on the government's Furlough scheme, causing the budget deficit to worsen.
Fortunately, the UK is now in quite a fragile recovery, but it is a recovery nonetheless. The Furlough scheme is now being credited as one of the most successful economic policies ever conceived.
This is because critics of the Furlough scheme argued that it may cause voluntary unemployment, or, unemployment in general as firms who have been propped up by the government will collapse once they are forced to pay all of their labour costs.
Fortunately, these predictions have not manifested as since the Furlough schemes end on the 1st of October, the UK unemployment rate has been slowly decreasing from 4.5% LFS in August to 4.3% LFS in September.
However, despite the success of the Furlough Scheme, how are these small businesses going to recover the estimated £126.6 billion which they lost during the COVID-19 pandemic?
The Welsh government has answered this problem by giving small businesses in Wales a grant of £35 million, which, if successful, is predicted to aid over 1000 small businesses.
This policy is designed to give small businesses a leg up after the COVID-19 pandemic as some may struggle to satisfy the demands of consumers compared to larger, more prominent firms.
This is a worry as a few Economists have a fear of a “K-shaped recovery.” This raises concerns over the possibility that the COVID-19 pandemic has increased inequality. Small businesses have suffered and giants such as Amazon have seen massive gains due to the increased popularity of online shopping.
So, the Welsh government sees it beneficial to protect these smaller businesses to ensure that they are able to support their local communities through providing services and keeping individuals employed.
However, some would argue that there is no reason to support these local businesses. The classical view is that, if firms are going to collapse, let them collapse, as other, more productive firms will take their place.
At the same time, the current degradation of small businesses such as high-street stores is also attributed to changing consumer tastes and fashions. Put simply, consumers are moving online, this makes some of these firms part of a bygone era, so, why should the government support firms whose product may have become irrelevant.
The government has a scarce operating budget, yet, it is unlikely that £35 million will put a massive dent in the budget. The current national debt is at £2.2 trillion so it is unlikely that our current government is interested in being skimp on spending, perhaps spending money on small businesses to retain employment and ensure the security of local communities is money well spent.
Written by Hubert Kucharski