The Coronavirus outbreak and the introduction of lockdown measures on March 23 of this year have changed the way of life for millions of people in Scotland. It has led to previously unimaginable circumstances for the economy - mass business closures, deserted cities and towns, tens of thousands of workers sitting idle on furlough and whole industries contemplating their future - in just ten weeks.
A new normal has been created in which Scotland is gripped by a health and economic emergency that threatens both the long-term health and wealth of the nation. With the Scottish economy contracting by a third many small businesses have responded tenaciously. A third have quietly and effectively innovated to stay in business by, for example, selling online, launching community based delivery services or producing PPE, hand sanitiser and other health-related goods and services for the NHS, care homes and consumers.
That said, the majority of small businesses have been hit hard by a situation out of their control. As a result, over a third of those who have closed do not know if they will be able to reopen.
Using our latest survey data from almost 800 businesses in Scotland, together with our latest confidence tracker, this short paper explores the impact of the crisis on small firms. It also sets out a range of actions that central and local governments could take to support small businesses, as the country moves tentatively out of lockdown.
Ten facts about Small Businesses and Coronavirus
The Business Impact of Coronavirus
Small businesses in Scotland have been hit hard by the Coronavirus pandemic and are struggling to maintain their viability. The introduction of lockdown measures for non-essential businesses over two months ago has led to the temporary closure of half of small businesses in Scotland and a substantial impact on cashflow for almost all firms.
These businesses have been hit hard by the Coronavirus pandemic and are struggling to maintain their viability. The introduction of lockdown measures for non-essential businesses over two months ago has led to the temporary closure of half of small businesses in Scotland and a substantial impact on cashflow for almost all firms.
What next for small businesses?
The current extraordinary circumstances mean that the stark nature of these results will surprise few.
Finding solutions to existing objectives – for example, how to encourage small firms to adapt to a net-zero economy, or addressing fair work – will be even more challenging than before. If, as seems likely, addressing these major challenges forms the core of economic recovery strategy, then small businesses must be at the centre of any policy design.
What follows is a collection of five actions government could take to help small businesses re-open, while ensuring that our approach to recovery helps them thrive.
Throughout the lockdown restrictions, the Scottish Government and the wider public sector have provided essential support to small businesses. For many local businesses, interventions such as the £1.2bn Coronavirus Business Support Fund have been the difference between closing temporarily and closing permanently.
Although the payment of funds by local authorities has been far from perfect, an issue raised repeatedly by FSB, it will continue to be vital that government, in partnership with local authorities, continues to financially support local businesses during and beyond the easing of restrictions. A rapid end to critical support could jeopardise the ability of firms to bounce back from the crisis.
There are a range of options available including:
In response to the Coronavirus outbreak, many small businesses have turned to innovation to generate revenues – especially in the food and drink sector. Businesses have had no choice but to radically transform their business model in an extremely short time period.
This has led to a range of positive and diverse outcomes for businesses and their staff, as well as their customers and the wider economy. Examples of innovation during the lockdown include:
Taken together, these measures represent a significant contribution to the Scottish economy. However, rapid digital innovation, by both the public sector and small businesses, has also highlighted weaknesses that should now be addressed if we are to lock in any gains.
To build on recent innovation, the Scottish Government should:
Launch a peer-to-peer innovation scheme, which could be voucher or match-funding based, to help businesses maintain and improve their innovation efforts. Rather than relying upon a narrow base of consultants or advisors, this would enable businesses to draw upon the support and expertise of their wider local business community.
Encourage businesses to build upon digital innovations made during this crisis to make recent growth more sustainable (e.g. moving from e-commerce to wider digital integrated systems such as invoicing and marketing) with new financial incentives and support programmes.
Redouble their efforts, alongside regulators, to address shortcomings in Scotland’s digital infrastructure, so that businesses and home-based staff can work from anywhere in the country.
Develop a joint programme to improve the digital capabilities of Scotland’s business-facing public sector (e.g. enterprise agencies, regulators, tax authorities, central and local government) with a focus on improved digital communications, transactions and data-sharing.
Investigate mechanisms to increase quickly the output of vocational digital skills – building on the free online courses available on My World of Work. This would help meet the likely uptick in demand from firms looking for people with a broad range of capabilities and a likely increase in the number of people who may need to retrain.
The tourism industry is a central part of local economies across Scotland: from the Highlands and Islands in the north to Dumfries and Galloway in the south. Contributing £11bn to the economy and providing over 200,000 jobs, the industry is a key source of growth and employment across the country – especially in remote and rural communities.
The Coronavirus pandemic presents an industry dominated by small businesses – 96% of all firms are small and they provide 51% of employment in the sector – with its greatest challenge.
Building on the ongoing work of the Scottish Tourism Emergency Response Group and the Creative, Tourism and Hospitality Enterprises Fund, further financial support will be required to prevent widespread business closures and job losses in a sector that operates largely on a seasonal basis.
This support will be required for two key reasons. First, FSB data reveals that small tourism businesses have experienced a more severe impact on their operations than other businesses in Scotland and are therefore more at risk of closing permanently. For example:
Secondly, the Scottish Government’s route map requires accommodation providers, the cornerstone of the visitor economy, to close for a longer period (phase three). This will mean that small businesses that run hotels, self-catering premises and B&Bs will not be able to open until 9 July – at the very earliest.
Secondly, the Scottish Government’s route map requires accommodation providers, the cornerstone of the visitor economy, to close for a longer period (not re-opening until phase three). This will mean, according to a recent statement by Tourism Secretary Fergus Ewing, that many small tourism businesses will not be able to open until 15 July.
In light of what will be a short season with lower levels of visitor numbers and visitor spend, the survival of many profitable tourism businesses is likely to rely upon ongoing financial support from government – especially as many have been unable to access previous forms of support.
The Scottish Government establishes a new tourism resilience fund to provide small businesses in genuine hardship with a financial safety net;
Beyond that, wider recovery plans for the rural economy should recognise the interdependencies of many sectors who operate in an area, rather than focusing too narrowly on primary industry businesses. Stimulating economic activity across communities, working with a blend of private, third and social sector operators, will be necessary;
The recent increase in home-working opens up additional opportunities to increase the working age population in rural communities experiencing a declining population.
The creation of a £50m Town Centre Fund in 2019 by the Scottish Government, as recommended by FSB, was a welcome departure from an economic development approach that has, since the first the signing of the first City Deal in 2014, prioritised the needs of cities and city centres.
Although the TCF has not been without its problems, it signalled that the government is willing and able to provide capital investment for the transformation of towns.
The current crisis has made existing problems even more acute, further strengthening the case for investment.
In particular, the crisis has accelerated the trend of online sales – the proportion of money spent online in the UK has increased to 30.7%, the highest figure on record – and increased the cost of operating a businesses on the high street due to the new safety measures that will be required.
FSB recommends repurposing the £201 million allocated to city region and growth deals from this year’s Scottish Government Budget, as well as the UK Government’s contribution to projects, to provide investment for local authorities and Business Improvement Districts Scotland (BIDs) to prepare towns and high streets for re-opening.
The new fund would go beyond the recently launched £50m scheme by the UK Government for high streets in England and provide funding for:
The economic case for investing in high quality, affordable childcare is well-known. By enabling the participation of parents in the labour market, and mothers in particular, the economy gains in higher rates of economic growth and productivity, higher levels of entrepreneurship, increased competition for jobs and lower levels of poverty – as well as addressing a range of gender equality issues.
Due to the restrictions in place to tackle the Coronavirus outbreak and the closure of much of the childcare sector for non-key workers, the country is experiencing in real-time the impact on the economy and society of a lack of childcare. With only a small proportion of the sector operational in
phase one, however, the onus will continue to be on employers and parents to work flexibly until all childcare providers can open in August (at the earliest).
While small businesses will continue to do all they can to support their staff by offering flexible working patterns - many business owners are parents and grandparents themselves - there will be unavoidable short-term economic losses from this way of working.
Prepare and equip childcare providers to re-open as quickly as it is safe to do so. This support will be especially important for private, voluntary and independent (PVI) nurseries, in light of the physical distancing guidance25 issued by government, given they are unable to freely tap into the expertise and resources of the wider public sector;
Provide financial support to enable privately owned independent nurseries to make the necessary investments in their premises and their workforce to implement physical distancing.
Read the full report
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