August 10, 2020 2.59 pm This story is over 39 months old

Opening schools vs closing pubs: Trade offs and other quick fixes

Shutting down hospitality again is risky

The Prime Minister has made yet another bold statement on what his government will do to get the kids back to school. Pubs, restaurants and shops may be closed again to prioritise children’s education. A ‘trade off’ as it is so frequently and casually described.

This incessant bombardment of declarations on COVID-19 strategies risks economic damage and stagnation not seen since the austerity years of 1945-1951, and it is neither reassuring nor politically possible. The economic damage that has already been done, particularly in the hospitality sector, is beginning to be seen clearly and the picture that is developing is frightening.

Last week housing minister Robert Jenrick categorically denied that pubs could be closed again as a ‘trade off’ to get schools reopened. Now his boss tells us it is a “moral duty” to get schools reopened and that he would if necessary close pubs and restaurants again.

While the PM may be correct in his assertion that we have a moral duty to educate our children, making dramatic statements such as this in no way helps the situation. Another lock-down of the hospitality sector would be devastating. Even if this was underwritten by another colossal burden for the taxpayer, many pubs and restaurants simply would not survive to open again.

Last week more information of an at first encouraging nature surfaced about the sector. Insolvencies in the hospitality sector were down in the last three months from 643 to 326, down 49% on the first quarter. Sector insolvencies are in fact at the lowest rate since the 3rd quarter of 2010. But it is too early to cheer or pop the champagne corks in the recently reopened pubs. Factors contributing to that drop in insolvencies include not only the financial assistance for businesses and furloughed staff, but a moratorium on the requirements for a business, particularly a licenced business, to declare insolvency.

Company law and licensing law makes it unlawful to trade while knowingly insolvent. To do so risks personal penalties, not only losing one’s business but potentially home and personal possessions.  Sensibly the government suspended the parts of the legislation that imposed this burden during the lockdown, but it cannot remain suspended forever. To do so would be to hand a blank cheque to those who would seek to exploit it for less than honest needs.

The financial intervention of the government have been necessary and a lifeline to businesses and jobs.  We all know that we, the taxpayer, will be paying this back for a long, long time. We are also painfully aware that it has not saved all the businesses that it was intended to. Many hospitality businesses have gone under and the worst is yet to come.

UKH (UK Hospitality) and data firm CGA Data Consultancy predict three quarters of hospitality businesses are at risk of insolvencies within the next 12 months. That is an enormous threat to the economy. This is not a wild guess, but is carefully calculated and divided into risk groups. 3% expect to be insolvent, 18% predict significant risk of insolvency, 55% a slight risk and only 24% stated there was no risk. It goes without saying that a second lockdown will very much increase the risk of insolvency for many in the sector. Put simply, we would see those figures veer strongly towards bankruptcies.

Some commentators have referred to the government’s financial assistance program as having created zombie companies, still alive only because of the suspension of wrongful trading regulations and government bailouts. The warning is already issued, those found wrongfully trading after the emergency provisions and those who knew in advance of their bailout that they were insolvent face insolvency proceedings and even fraud prosecutions in the worst cases. Those who took financial assistance knowing they were already insolvent before COVID-19 are at very high risk indeed.

The press in the last few days have increased the pressure on the hospitality sector. Stories appear daily of ‘irresponsible’ behaviour of pubgoers and licencees. Calls for punitive action and closer surveillance are out there. The general line is “why should our health be put at risk for other people’s fun”. On the face of it, a perfectly reasonable question, but one that needs tempering with a closer examination. It’s not just about other people’s fun. When we come out of this pandemic we need a strong economy to pay for it. Every time a business goes bust the economy gets a double hit. Jobs are lost, tax revenues are lost and the knock-on affects us all, even if we never go out for a drink or a meal.

So next time there is a quick fix call for a second shutdown of the hospitality sector, we should all remember this. Our wonderful NHS is paid for by the taxes that business and workers’ pay, and so for that matter are ours schools. Let’s hope the next time Boris and his ministers talk about this they stop for a few seconds to contemplate what a ‘trade off’ really is, because when it comes to trade it is about cost every bit as much as advantage.

Barry Turner is a Senior Lecturer in War Reporting and Human Rights and a member of the Royal United Services Institute.