Why lack of government help for professional services will hit the economy hard

wage rise

The services sector contributes around 80% of UK GDP, so why hasn’t more been done to protect it during the Covid-19 crisis.

Like Covid-19 rolling news, the conditions and government support for small and mid-sized businesses change so rapidly it’s hard to keep up.

In the space of a month many people in the UK went from blithely or stubbornly persevering with their daily lives to entering a period of seemingly indefinite hibernation. Shops and restaurants we love were shuttered up and we can’t visit our hairdressers, coffee shops, local theatres or gyms.

And back in the first weeks of the crisis it was entirely appropriate the news agenda and government focused on these businesses. Small business owners unable to serve their loyal customers. Employees laid off or furloughed as soon as the government announced the Job Retention Scheme. The pain so many business owners were going through was palpable.

Service sector being left behind

Yet the services sector is still not getting the attention it needs, given that business to business contributes around 80% of UK GDP. There are hundreds of thousands of creative businesses, agencies, software companies, accountancy and law firms, tech businesses, and others that together employ millions.

Hidden away in their office blocks, they don’t have the visibility of the retail, leisure and hospitality businesses. But the impact – while not measured in footfall – has nevertheless been devastating. And it will be on the economy too if these businesses also go to the wall.

Prior to the announcement of the Job Retention Scheme, which has been a livelihood saver for many, I spoke to many fellow business owners who had already made the impossible decision to lay off members of their teams. Some have been able to act subsequently to instead furlough employees, ensuring they at least receive 80% of the salaries up to the £2,500 gross per month.

Like restaurants and shops, these businesses are unable to access their premises. But the business rates relief that has been extended to all businesses in retail, hospitality and leisure sadly does not apply to the office-bound companies. VAT may have been deferred but will still need to be paid later. Any loans taken now will also need to be paid back. And while landlords cannot evict tenants for now there has been reluctance to reduce rents – often with the expectation of making up any shortfall later..

The costs associated with running service-based businesses are still there and the problems are piling up at a time when they are losing clients. And then there are the many small office support businesses, such as cleaning firms, caterers, that have lost their contracts – at least temporarily.

Admittedly, many professional service businesses are able to continue to function and deal with clients face-to-face thanks to video conferencing. Teams too, can join calls and feel the sense of renewed solidarity the nation has begun to feel as we deal with our rapidly changed world.

But the ripple effect of financial markets collapsing, investment drying up, almost zero street-level footfall, is leading to very worrying cashflow issues – and we’ll see this develop more in the coming months.

More trouble ahead

Covid-19 or coronavirus still felt like a problem affecting others when my company Fluidly first revealed that almost a fifth of businesses were in the red – using their overdrafts. As a cashflow management app, we were able to see the impact months of Brexit uncertainty and then flooding had had on small businesses.

Even a year ago, retailers and real estate agencies were operating on the breadline with 21% and 23% respectively using their overdrafts in February 2019. By the end of February 2020 the corresponding figure had hit 25% for both. Bars and hairdressers, as you might expect, have suffered badly rising from 11% and 13% to 21% and 22% respectively. In real terms we’re talking about hundreds of thousands of businesses in those sectors alone.

But it is advertising businesses (19% up from 13%), consultancies (8% up from 6%), architects (13% up from 10.5%) where there are rising concerns. While the figures are lower, it’s also worth recognising that in February’s figures we had yet to see the coronavirus impact. I fully anticipate an already dire situation becoming catastrophic for business owners and the economy.

First and foremost, concern is for human life, and we all have loved ones we are worrying for each day. Then there are the key workers, particularly the NHS, who put their own lives on the line for us. We have never felt more appreciative of something we too often took for granted.

Once we begin to emerge from this, we will all want our favourite shops, restaurants, hotels to be there. But in an economy where we also rely heavily on the services sector, let’s not forget about those small businesses. I served as a business ambassador for David Cameron’s government, representing the professional services sector, so this is close to my heart. As the government has rightly said, we’re all in this together. So don’t let this invisible killer wipe out the less visible small businesses we need for our economy to thrive.


Caroline Plumb OBE

Serial entrepreneur, tech innovator, small business expert and one of the 1% of VC-backed female business owners, formerly one of the Prime Minister's Business Ambassadors, and awarded an OBE in 2016

https://fluidly.com/

Serial entrepreneur, tech innovator, small business expert and one of the 1% of VC-backed female business owners, formerly one of the Prime Minister's Business Ambassadors, and awarded an OBE in 2016