HAMISH MCRAE: Clarity is what firms need now

People are getting back to work. The Government will update its guidance as to what we should and should not do, but already within the present guidelines more and more companies are opening up. But only some can. What business needs now is clarity.

Construction is in the vanguard of the march back. Persimmon, the country’s second-biggest housebuilder, said on Friday that it will start reopening sites from this week onwards.

Taylor Wimpey and Bovis are getting back. Expect the others to do the same. But other industries will take much longer, either because it is impossible to operate while maintaining social distance, or because there will be no demand. You don’t fly off somewhere if it means two weeks in quarantine when you get there.

There are two forces at work here. One is what we are allowed to do. The other is what we choose to do. The Government is critical as far as the first is concerned. You can understand its reluctance to open things up only to see a corresponding rise in infections and, sadly, deaths.

But the vast majority of us would surely accept changes in its plans should the facts demand that. Without a sketch of how the economy will be restarted, it is impossible for businesses to figure out what to do.

There is also a case for targeted help for specific industries. If you want to help the motor industry, what about a scrappage scheme encouraging people to buy hybrid and electric cars?

Some of the manufacturers have already announced plans, and the Government could give them a further boost. Do you help the pubs by allowing phased reopening, first only for the young? Not easy, but a chance for the Government to prove it is innovative. 

Knowing what we will choose to do as the economy opens up is even trickier. It would be great to be able to point to similar instances in the past and see what we did then. But there aren’t any. However, our common sense can tell us quite a bit.

For example, if we are going to be spending yet more time in our homes, we will spend more money on them. Those postponing moves will give a further home improvement push once the housing market is functioning again. So we will both be refurbishing our homes and buying more kit to put in them.

We will be spending less on holidays and entertainment generally, even when things open up. For people whose salaries have not been affected, that will be money either to save or spend on other things.

For those whose incomes have been savaged, especially small business owners and the self-employed, I’m afraid this will mean two or three years of rebuilding. 

Luxuries will be off the agenda. Indeed the luxury market more generally will suffer – this will not be a time to be seen to splash money about. The biggest puzzle of all, however, will be whether we do spend or save. 

The instinct of most people when they are frightened is to clamp down on spending. But the more we save the slower the economy will recover. That is another area where we need clarity from the Government.

How will it use the tax system to encourage people to rebuild their spending – and by doing so, rebuild the economy? It is right to bail out businesses, but if there is no demand, those businesses won’t survive anyway.

We had an intriguing snapshot of the impact of the virus on global business in the past few days. As you might expect the outlook for many businesses, even massively strong ones, is disastrous. So Mercedes-Benz owner Daimler reported a plunge of 70 per cent in its operating profits and its shares have fallen by nearly half this year.

But some sectors are doing fine. The Danish stock market is nearly back to its level at the beginning of the year. Why? Because roughly half of the index are pharmaceutical companies, which as a sector has done well. Amazon shares are actually up about ten per cent on their mid-February peak.

But what about the basics – things we have to buy, rain or shine? Two consumer product giants reported last week. Nestlé has had the best quarterly sales in Europe and North America for five years as people stocked up on frozen foods and pet food. 

But Unilever sales were flat. It was selling less shampoo and deodorant because more of us are working from home. It is brutal, but the sorting of global business into winners and losers is well under way.