Post-Covid challenges for small businesses

By Stuart Patrick, Chief Executive of Glasgow Chamber of Commerce 

With the Scottish Government’s very last legal restriction on mask wearing in public places due to be lifted next week, it will feel like the time for businesses to move on from two years of coronavirus disruption. It won’t be that easy, even in the absence of any future new variants, as we live with the lasting legacies of the pandemic.  For most firms the main challenges are adapting to hybrid working patterns, handling high levels of sickness and finding new employees in a labour market much tighter than anyone was predicting back in March 2020. Some of our airports and airlines have been very clearly struggling with staffing as travel demand soars over the Easter break. For many other businesses the legacies are much more threatening and much less visible.   

The Bank of England warned back in November that a third of small independent businesses had become highly indebted, double the rate prevailing before the pandemic. High debt is defined as those businesses with lending at more than 10 times their available cash balances.  The Bank was also warning of a likely increase in the incidence of company collapse and that was before the impact of the Omicron variant and with much more limited government financial support available. 

It is often said that the year coming out of a recession is the most difficult as trade grows but cash levels haven’t recovered enough to cope with the extra working capital needed to buy more stock and rebuild staffing numbers.  How much more challenging must it be for those stretched businesses when they also have to deal with genuinely dramatic increases in energy, shipping, construction and food costs to name but a few. Small businesses have nothing like the negotiating power of the larger corporates and cannot always raise their prices to cover all those costs.  Recent British Chambers of Commerce survey results confirmed that whilst three quarters of Chamber members - both large and small - were indeed increasing prices, no less than 44% of firms were also having to accept lower margins. 

It is still too early to tell whether that pressure will turn into a wave of business failures. Figures from the Accountant in Bankruptcy show in Scotland there was a significant dip during the worst of the pandemic when financial support and protections against insolvency proceedings were both in operation, but the rate of failure has since been creeping back up to the pre-pandemic level. One major hurdle remains ahead for many of those indebted businesses with rates relief finishing in Scotland at the end of June.  

It was very disappointing that the recent Scottish Retail Strategy rejected any further action on business rates arguing that the recommendations of the pre-pandemic Barclay Review should be bedded in first.  Businesses are told they must adapt to the changes the pandemic has caused in consumer habits and the rise in hybrid working expectations, so one might hope for equal flexibility in the rates system. 

The document also reminded us that ‘over £4.5billion has been provided by the Scottish Government to help businesses come through this difficult trading period’.  I rather wish the government would stop making that point.  The support was always welcome but it was only necessary because governments decided to use unprecedented powers to restrict and close business operations.  Financial support received under these conditions feels rather different to the more normal investment governments make in economic development.  Businesses also repeatedly reminded governments that the support offered very rarely, if ever, fully covered business costs such as rents, insurances, staff pension contributions and equipment leases.  Businesses were left to cover those costs out of dwindling reserves or by taking on all that extra lending that the Bank of England has described. 

Small independent businesses make a distinctive and valuable contribution to our community and they deserve to be a priority for economic policy even after the pandemic restrictions are gone.

This article was first published in The Herald on Wednesday 13 April 2022