CBI @10am: Autumn economic outlook: what lies ahead for business

Replacing the Daily Coronavirus Webinars, our new bi-weekly broadcast - CBI @10am - will help support you through the next phase of the pandemic, giving you expert insight and intelligence to continue adapting, and providing the guidance you need to restart and boost your business, and build resilience for the new normal.

Speakers:

• Rain Newton-Smith, Chief Economist, CBI
• Irene Graham OBE, CEO, ScaleUp Institute
• Andrew Pilgrim, UK Government and Financial Services Leader, EY
• Ceri Thomas, Editor and Partner, Tortoise Media (Chair)

Overview:

Today's webinar focused on the autumn economic outlook and what lies ahead for business. Here are some of the key discussion points:

There are rays of light, but tough times ahead

The economy shrank by 25% over March and April, but that’s behind us now. The economy is growing – albeit slowly – with 2% growth in May, and 9% growth in June. And we hope that July’s GDP figures will see more growth. There are also other improvements, such as in retail spending. That said, there’s a long way to go. The recovery looks different depending on your sector, your type of business, and your location in the UK.

The government’s support schemes – such as the Eat Out to Help Out scheme – have been a success. But how long does that last? And how does the recent increase in infection rates affect confidence in the recovery? According to Rain Newton-Smith, Chief Economist at the CBI, finding a successor to the Job Retention Scheme is vital. Rain added that we can’t just extend the JRS, so we need a new support scheme which focuses on helping firms in extreme distress. It’ll likely have to be less generous overall and could come with certain conditions for the businesses who use it, but it’s clear that not finding an adequate successor to the scheme could significantly harm the recovery.

Unfortunately, Rain thinks, it may be that we’ve done ‘the easy bit’ and things could get tougher – particularly when unemployment goes up. So, we need to keep unemployment as low as possible to minimise the long-term impact on the economy.

The impact of the pandemic on scale-ups

Scale-ups are a huge part of the UK economy. There are 30,000 in the UK, with a further 16,000 on the journey to becoming one. They contribute £1tn to the UK economy, and employ 3.5m people. And they’re very resilient – with many continuing to innovate and expand overseas. Obviously, there was a big dip at the beginning of the pandemic, with coronavirus compounding many previously existing issues, but that’s continuing to improve.

That said, to ensure a long-term recovery, they need the right infrastructure around them and access to capital, as some haven’t been able to access the government support schemes. According to Irene Graham OBE, CEO of the ScaleUp Institute, there are key drivers of growth among scale-ups: access to talent, access to clusters (for collaboration), and access to growth capital/equity. And we need to use these three lenses for the recovery.

The issue of bad debt

At the start of the pandemic, UK businesses were struggling to repay debt. And the UK government is now the largest single investor in UK SMEs. So it’s sitting on a huge liability. And the debt problem is a big one. Andrew Pilgrim, UK Government and Financial Services Leader at EY, estimated that there could be as much as £100bn of unsustainable lending by the end of Q1 2021 – with government schemes around a third of this. And roughly a third of businesses could struggle to repay their debt from these schemes. So that puts roughly 780,000 SMEs, 3m jobs, and £35m of debt at risk. There have been encouraging noises over the summer, but will these continue?

Rain agreed this is a hugely critical challenge. Many businesses who took out Bounce back loans had never even taken out bank loans before. And we estimate default rates could be as high as 50%. Some of these businesses just won’t be able to pay, which puts banks in very tricky position. We want businesses to pay these loans back, because at some point lending will have to go back towards normal. But how do we determine who bears this cost? Resolving this issue will likely take months or years.

Does the UK need a more regional approach to business support?

Irene thinks one of the ways out of this crisis is using a more regional focus when talking about access to capital. There are other countries – such as France and Germany – who take a more regional, long-term view on this, and these could be used as good practice models. Rain adds that this is an opportune moment to improve our funding infrastructure, scale up our institutions, and create new ones.

Rain also thinks we need to go further and faster on devolution. We’ve seen how local leaders can step up. Local leadership helps with accessing local communities and getting health messages out. Local governments have been given pots of money they can draw on during local lockdowns but getting this money to the businesses who need it is not always a quick process. 

Selling the UK to investors 

There are a lot of challenges in the UK, but there are also a lot of reasons why it’s a great place to set up a business. So we asked the panel how they’d sell the UK to potential investors:

• Irene: We have a strong economy, great entrepreneurship, and we’re an easy place to do business
• Andrew: The UK continues to perform strongly on foreign direct investment, and investors think the UK is well placed to deal with the challenges coronavirus presents; the UK is also a leader in digital technology and R&D, and could be a potential leader in the fight against climate change 
• Rain: Our key strengths are our innovation, creativity, and our universities. And we could be the country that saves the world with a vaccine!