Global airlines tentatively return to the skies as fight for survival intensifies2 June 2020
Europe shows solidarity in landmark debt mutualisation commitment27 July 2020
UK government must manage divided attention while resetting national agenda
The UK, like other nations around the world, has divided attention.
On the one hand, governments, industries and households are steadily reopening society and assessing the impact of the immense stress that the Covid-19 pandemic ravaged on UK businesses of all sizes and sectors. On the other hand, the warnings ring loud that we are not out of the woods yet.
Last week Dr Anthony Fauci, one of the leading doctors organising the US coronavirus response, told a virtual BIO Digital conference there was “no way” Covid-19 would simply burn itself out. It is increasingly the consensus that no sustainable ‘next normal’ will be possible until a vaccine is developed and disseminated worldwide.
Currently there are 238 treatments in consideration and 161 vaccines in development worldwide, according to a tracker by FasterCures, a centre of the Milken Institute.
Therefore, divided attention is the prism through which the next stage of the intertwined health, social and economic crises must be managed.
The health crisis is transitioning from virus containment, healthcare system support and protection to mass health surveillance, rapid virus detection, contact tracing and targeted contact tracing, and the economic crisis is transitioning from a liquidity crisis to a solvency crisis.
At the same time, the social precedence is to balance the enduring tension between individual liberty and a collective responsibility in order to support both the economy and the wellbeing of the population.
Over the coming weeks, as the UK government attempts to reset its national agenda, we will explore the sector implications in the context of our forced divided attention – in balancing the public health emergency while minimising the economic toll. In this article, we set the scene for some of the themes we expect to cover.
Resetting the national agenda
In the UK, the government is turning its focus to the new reality after the pandemic. Its winter 2019 general election agenda consisted of a “levelling up” of Britain post-Brexit centred on fixing the problems felt by the UK electorate – large and small, real and perceived.
Many of these pre-pandemic pledges were an attempt at direct government intervention to rebalance the economy and enhance the overall productivity of UK.
These included ambitious infrastructure projects, such as HS2 – the high-speed railway, a third Heathrow airport runway, a new 5G network, ambitious housebuilding plans, and even cracking down on excessive utility bills. Many are likely now in need of a new reality check.
The government’s agenda must be reshaped to fix a whole set of different problems; some, such as wealth inequality, have been simmering under the surface for decades, which if left unattended could lead to far- reaching social, political and economic consequences.
Other national priorities, which fall between the government and private markets, have risen in priority since the pandemic, such as China-dependent global supply chains and 5G networks.
The UK government, while still at the epicentre of the pandemic, will need to balance post-Brexit free market Britain on the one hand, and a strategic need to reduce over-reliance on a dominant world market.
As in many countries, the pandemic exposed the UK’s inadequacies to protect itself in a major global health emergency, including limited domestic sources of critical medical supplies and underdeveloped diagnostic capabilities. Diversifying supply chains is inevitable – the balance and degree across sectors is another needle yet to thread.
In all of this it is difficult to know where Brexit fits into national priorities. Ahead of a key summit at the end of this month, the UK government has so far ruled out any extension to the post-Brexit transition period that ends on December 31; this once again raises the prospect of a no-deal Brexit adding more stress to UK businesses still reeling from the pandemic, although the economic impact of a no-deal Brexit scenario would likely be obscured by the damage wreaked by coronavirus. The epilogue of this unpredictable saga remains to be written.
Wave of recapitalisation to come
Companies, like governments, too have their attention divided. One of the central themes which we continue to monitor will be on the health of the UK corporate sector, in what we have called the transition from a liquidity crisis to a solvency crisis.
An estimated £100bn could arise in unsustainable lending volumes by Q1 2021, according to new research by TheCityUK, of which £50bn to £56bn will be borne by small and medium-sized UK businesses including high unsustainable debt concentrations in real estate, construction and hospitality sectors.
Further, a proportion of funding from government lending schemes – in the region of £32– 36bn – will become unsustainable, the analysis suggests, which captures the scale of recapitalisation that is required.
One of the many differences between this crisis and the global financial crisis of 12 years ago is in the abundance of equity and debt capital on the sidelines – already raised – and looking for investment. We continue to monitor government policies in the context of sector-specific dynamics and the relative need for recapitalisation strategies.
If your business, or portfolio company is directly impacted by any of the challenges discussed here and you would like to discuss your strategic options, do get in touch with us and let us see how we can lighten the load.