Friday Highlight  

Venture capital's role in Britain’s road to recovery

Venture capital's role in Britain’s road to recovery
Credit: Simon Dawson/Bloomberg

After such a challenging 2020, we are all looking for the green shoots of recovery.

That was the focus of the government’s Build Back Better Business Council, which held its first meeting last month.

We think there are signs of hope and the venture capital industry needs to play its part in this journey of rebuild and recover, and we’d like to set out how.

It goes without saying that the situation remains extremely difficult.

It is galling to remind ourselves that going back to the first lockdown starting last March, the economy contracted 20.4 per cent in the second quarter of 2020.

If employment is the bellwether of the health of the economy, the situation is not rosy. 800,000 people have already lost their jobs and this will only increase, as the furlough scheme, currently protecting almost 10 million employees, runs down. 

We need our leaders to think more like our founder-led businesses. We should explore different initiatives to reignite the economy, acknowledging that some will work and some will not.

Obviously those that work, repeat; those that don’t, cease.

Government response

There is no one-size-fits-all model that works for locking down our country as this terrible disease affects different groups so disproportionately.

Both society and the economy have to adjust to the new reality presented to us since 2020. While our government still responds to the challenging circumstances presented by Covid-19, it is clear we need to have new routes to opening up the economy.

Young people and those who are not medically vulnerable need to be able to get back to work. 

Furthermore, some household savings have risen significantly since the start of the pandemic.

Consumer spending bounce back

There has been a substantial rise in the amount saved by middle and higher-income households, as well as retirees.

The household savings ratio (which measures savings as a proportion of household income) increased from 9.6 per cent to 29.1 per cent in the first two quarters of last year (this is at record levels since this measure was first taken in 1987).

Hence, according to the Bank of England’s Chief Economist Andy Haldane, well over £100bn was saved between April and June 2020.

Many households have only spent on essentials such as food, children’s clothing and loungewear and have saved money on commuting, holidays and not buying other luxuries.

Just as the government has had to declare a physical lockdown, consumer spending has also been in lockdown, but this can’t continue forever.

There is the prospect of a release of these savings as lockdown is eased; at that point, people will be able to socialise, shop and spend again. 

A bounce back of consumer spending has been the pattern after previous national crises.

An increase in spending precipitated the recoveries after both the First and Second World Wars.