The Government was swift to bring in a number of policies to support businesses as a result of the Covid crisis. But how should it roll back this support in a way that allows growth to occur across the country?
There is no easy answer to this, but the timing of the roll back of these policies, as well as what replaces them, will have major implications for the nature of the recovery.
This briefing sets out principles on how this should be done to help support the recovery across the country. It makes three main recommendations:
- Once lockdown is lifted for pubs, cafés and restaurants, support should change from blanket support for all sectors to splitting businesses into two camps depending on their role in local economies. For ‘local services’ businesses such as shops and cafés, policy should switch to boosting demand for them through a local voucher scheme, for example.
- The Covid Job Retention Scheme (CJRS) should transition into an employment and skills scheme, so that support switches from supporting businesses to more directly supporting workers.
- The Government should use the data it has created through the CJRS and related programmes, along with data from HMRC, to measure what is going on at the local level in real time to help target and tailor support.
Introduction
This briefing proposes a framework for policymakers to think through what is a complex challenge, and splits the response into three phases, summarised in Figure 1. We make a number of policy suggestions, and would welcome conversations to further these or other ideas in the coming weeks.
Figure 1: Summary of the policy framework

Policy makers should split the response into three phases
The two main reasons why businesses will fail as a result of the current crisis is that either that they are fundamentally sound businesses with severe short term cash flow issues, or that there is a longer-term problem of a lack of demand for their products or services.
The challenge for the Government in removing the short-term support they have put in place is to do it in a way that does not cut off support while the former category of business finds its feet, while not prolonging support for the latter, which both delays people moving to another job where possible and is not a great use of taxpayers’ money.
A three-phase approach helps us to understand how to do this. We are currently in Phase I, where a number of businesses are closed due to lockdown and those that can work from home continue to do so. Phase II is a transition phase, in which the Government should start to vary its approach by sector. Phase III should represent a shift in all policy away from supporting the business to supporting the worker.
What should be the trigger for moving to Phase II?
The lifting of lockdown for pubs, cafés and restaurants should signal the move into Phase II. By this point, all retail will have opened, schools will be operating, cafés, bars and restaurants will be able to trade once more (albeit with restrictions) and most people will in principle be able to go back to work.
Policy support in Phase II should vary by sector
Phase II is a transition phase lasting no longer than two months. In this phase, the challenges that businesses face in trading are not the same so policy support should vary too.
To understand why the approach should vary by sector we need to split businesses into two categories.
The first set are local services businesses, such as shops, cafés and bars (think your local high street). They sell very much to a local market so they depend on the amount of demand in the local economy. This demand is determined by the amount of money coming into the economy. And the amount of that money is mainly determined by the performance of a second set of businesses – exporting businesses. These are businesses concentrating on activities such as advertising, manufacturing and software development companies that sell beyond their local market and bring money into the local economy.[1] Box 1 sets out how these sectors may be defined.
Box 1: Defining local services and exporters
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In practice, there is a grey area between those companies that ‘export’ and those that do not. For example, some law firms will deal only with local property conveyancing and criminal cases, while others will deal with issues for multinational firms. To deal with this, the Government should identify those sectors that are most likely to be local in focus. This would include food service activities (bars, cafés, restaurants), retail, arts, entertainment and leisure and personal services (such as hairdressers). |
[1] Other sources are public sector jobs, income from investments and benefits minus taxes.
Two factors will affect how quickly trade picks up for local services businesses. The first is how their area’s exporters have fared during the crisis. If their order books have not been affected to any great extent, then their workers have continued earning their full wages, and local demand should not have been affected in any great way. Even those that have, have had access to support from CJRS. The result is the cafés, bars and restaurants in an area still in principle have a market to sell to.
The second is how long it takes for confidence to return for potential customers to leave their homes and visit the local high street again. Lifting lockdown does not mean that people will return back to ‘normal’ living overnight. The use of real-time data can help guide this, as Box 2 discusses.
Box 2: Use of real time data
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As well as offering much needed support, the CJRS and other schemes are generating huge amounts of valuable, granular, real time data on how the crisis is affecting economies across the country. In particular, in conjunction with the real-time Information data that HM Revenue and Customs now collects on jobs, it has the potential to reveal how hard the export sector of a local economy has been hit with implications for local services, where removing CJRS is likely to have the largest impact and the longer-term impact of the crisis on the economy.
Unfortunately, this data is not currently made available, even at the national level. The Government should move to make use of this hugely-valuable resource by publishing the data by sector in each local authority.
A second data source that will give insights is mobile phone and card payment data which will show how people return to spending money on the high street. Centre for Cities will be tracking how quickly this process occurs through its Recovery Tracker, which will look at how people are returning to the country’s 62 largest town and city centres. |
This has two implications for how policy supports local services in Phase II. The first is to extend the support that exporting businesses received in Phase I into Phase II.[2] This will mean that policy will continue to provide a safety net for an area’s export base. These businesses are strategically important because their performance is crucial for the longer-term performance of an area. In Edinburgh, they account for 24 per cent of employment but 43 per cent of output; in Burnley it is 28 per cent of all jobs and 49 per cent of output; and in Reading it is 30 per cent and 51 per cent respectively.
They’re important for local services because the money they bring in supports demand for, and jobs in, shops, hairdressers and beauty salons. Local services account for almost half of all jobs in Edinburgh, Burnley and Reading.
[2] This could be done alongside the tapering of support recently announced by the Chancellor.
The second is that the focus of direct policy support for local services businesses should shift from supporting costs (through paying wages, for example) – because they are now able to trade again – to encouraging demand to return. This means that the CJRS in its current form is removed for local services and replaced with policies to support demand.[3]