JUDY WOODRUFF: Next, how Britain’s shop-owners and their customers are being hit by the financial crisis. Margaret Warner reports from England.
MARGARET WARNER: Britain has famously been called a nation of shopkeepers. And from fruit stands in outdoor village markets to elegant boutiques in London’s chicest quarters, small independently owned businesses like these generate more than half of the country’s gross domestic product.
Now these small-scale proprietors are being squeezed hard by Britain’s financial downturn or credit crunch, as it’s commonly called here. Their trade association says some 50 small businesses a day are being forced to shut down.
It’s a cautionary tale for the U.S., where small business also accounts for more than half of economic output.
St. Albans butcher Carl Hatfull says his customers aren’t buying as they used to.
CARL HATFULL, Butcher: They shop for cheaper cuts and less of it. We have sold less lamb just lately and more pork, because pork tends to be a cheaper commodity.
MARGARET WARNER: He could adapt to lower sales volume for a good while if he could still get the working capital he needs to pay suppliers until his customers pay him. But since Britain’s bank crisis hit full force in September, Hatfull’s bank has cut his line of credit — what the Brits call an overdraft — in half.
CARL HATFULL: It’s been fine for the last 14 years, but all of a sudden, oh, well, you know, your overdraft’s too high. We don’t have the cash flow that large businesses have, whereas they can last longer. I don’t know how much or how long we will last.
MARGARET WARNER: To meet the bank’s demand, Hatfull is in turn squeezing his larger customers. He’s told the restaurants and clubs he supplies with meat that they must pay for their orders within a few days.
CARL HATFULL: It’s not always popular. I mean, people don’t like to be told that they can’t have a month’s credit.
Shop owners live 'day to day'
MARGARET WARNER: This wasn't what Prime Minister Gordon Brown had in mind six weeks ago. That's when he announced the government would inject up to 50 billion pounds, or $87 billion, directly into troubled British banks in return for stock and an understanding that they would keep credit flowing to their customers.
VINCENT CABLE, Member of Parliament, United Kingdom: We needed a fundamental recapitalization of the banks, which has happened, but isn't working yet.
MARGARET WARNER: Vincent Cable is the leading economic figure in the party of Liberal Democrats in parliament.
VINCENT CABLE: There are thousands and thousands of people like the businessman you've been talking to, all going out of business, all creating more unemployed people, all driving down the economy, all creating more bad debts. Well, that's actually bad for the banking system.
MARGARET WARNER: James Robson opened this London restaurant two-and-a-half years ago with backing from private investors. His receipts are down this past year, but he still sells plenty of $150 bottles of champagne, and he does a huge business: 3,500 customers a week in the bar, and 1,000 more in the restaurant.
Even so, he says, his bank is trying to cut back his line of credit.
JAMES ROBSON, Restaurant Owner: They are coming back to us with ridiculous rates, way over what we paid before, and ridiculous arrangement fees. They're scared. They're very, very scared.
They think every business is going to collapse. They don't see our sector as being reasonably stable. So they're just shutting down shop completely. It's completely suffocating us.
MARGARET WARNER: For now, he's trying to negotiate a new agreement with the bank while continuing to write checks against the expired line of credit.
JAMES ROBSON: We're kind of waiting for them to foreclose on us.
MARGARET WARNER: So basically you're just living day to day, waiting for the axe to fall?
JAMES ROBSON: That sounds a bit dramatic, but, yes, it is a bit day-to-day at the moment.
Banks reduce lending
MARGARET WARNER: There are a lot of jobs at stake. Robson employs 65 people, but fears he'll have to cut that back to 50 next month if he doesn't get a new line of credit on terms he can live with. What steams Robson is that his bank, Halifax Bank of Scotland, is one of the banks that took the government's rescue offer.
JAMES ROBSON: At the end of the day, they've been fully bailed out by the government, yet they're still cracking down on small businesses like anything.
ANGELA KNIGHT, British Bankers Association: You're absolutely correct that the banks are not lending in the same way as they've been lending the last two or three years, clearly not.
MARGARET WARNER: Angela Knight, CEO of the British Bankers Association, says the government rescue money hasn't started flowing in full. Besides, she says, the banks are simply being prudent.
ANGELA KNIGHT: You can't be lending at a time of this sort of turndown in the economy in the same way as you were lending at a time when credit was cheap and we were all in a boom market. So I think that, you know, to try and compare boom times with down times is simply inappropriate.
MARGARET WARNER: M.P. Vincent Cable warns the banks won't start lending again unless Gordon Brown's government uses its leverage to force them to.
VINCENT CABLE: They're behaving in ways which make perfect sense for them as individual entities but are disastrous for the economy as a whole.
Now, if you're running a bank, you want, first of all, to make sure there's adequate capital. And if that involves shedding enormous numbers of customers, well, that's not their immediate concern.
And the problem is that, if they're allowed to pursue this self-centered, short-termist policy, this, of course, drives the economy down.
MARGARET WARNER: Yesterday, the governor of the Bank of England said the single greatest factor dragging Britain down now was tight bank credit. He said if banks do not resume lending and extending normal credit lines to business, the government may have to intervene directly.
Consumers change spending habits
MARGARET WARNER: Tight bank credit is driving Britain's financial slowdown from the other side, too - the consumers, or at least those who've been living beyond their means since the free-spending '90s.
Pub-owner Sean Hughes, who's his 20s, has seen a big change in people's spending habits even in his young life.
SEAN HUGHES, Pub Owner: When I was very young, I mean, it was different then, because credit wasn't a real kind of thing in people's lives. It was obviously -- you know, if you had the money to buy something, then you could buy it.
Whereas now, people just seem to look at something like a television, and be like, "I want that," and they can get it, because they can get on no percent interest or they can get it on whatever.
SELLER: We got things for 5 pounds, 10 pounds, 20 pounds.
MARGARET WARNER: That attitude led many British consumers, especially younger ones, to run up huge levels of personal debt, more than even in the United States. Total household indebtedness here, credit card and mortgage debt combined, stands at 160 percent of GDP, the highest in the developed world.
EMPLOYEE: I'll speak to you tomorrow to see what you've decided.
MARGARET WARNER: But now British banks are squeezing these consumers through their credit cards. Credit counselor Jahanara Hussain works for a nonprofit in London's East End.
JAHANARA HUSSAIN, Credit Counselor: It's not atypical for us to see a client who has more than 10, 12 credit cards, for example. Two years ago, three years ago, that person with the 10, 12 credit cards would have just gone to the bank, either sort of consolidate all of those credit cars and got a huge loan out.
That's changed now. Lenders are not giving out money, you know, because they're obviously under pressure, you know, in this crisis, and so that option is no longer available.
MARGARET WARNER: And that brings us back to small businesses.
NEIL GUN, Clothing Store Owner: It's just getting harder and harder to actually pay your costs.
MARGARET WARNER: Men's clothing store owner Neil Gunn, who opened this shop in London's Brixton neighborhood four years ago, says it's bad enough that his cash sales are down 20 percent in recent months, but his sales to credit card customers are down a whopping 50 percent.
NEIL GUN: And, obviously, they're looking for cheaper -- cheaper garments. And so our margins are less, our profit margins will be less. And, obviously, when you're selling cheaper garments, you're looking for volume, but the volume is less, obviously. We're in a no-win situation.
Coping with the recession
MARGARET WARNER: It may not be good for business, but whether by choice or by force, some British habits are changing.
It's nothing like the days of rationing that Britain went through during and after World War II, but faced with the prospect of a deep recession through next year, some Brits are rediscovering a simpler lifestyle and values.
ROZELLE POPE, Shopper: I think it's brought on a sense of World War II austerity, that you want to hibernate like a little animal and just -- I think food sales have gone up, so people are really trying to make themselves feel safe, I think, and protected.
MARGARET WARNER: Rozelle Pope has begun shopping at thrift stores, like this Oxfam charity store in Notting Hill.
ROZELLE POPE: My buying habits have been that perhaps I might have bought something frivolous, whereas now I buy something practical, that will have a longevity, that will last.
MARGARET WARNER: Sarah Farquhar, who runs Oxfam's retail operations, has seen a marked increase in its sales of donated goods at Oxfam's more than 700 British stores.
SARAH FARQUHAR, Oxfam: What you will find in an economic downturn, that people become more frugal. They're looking for different alternatives in terms of where they spend their money. And, you know, we are a beneficiary of that.
The challenge for us is to make sure that we keep attracting donations, because, of course, what happens to all of us when we don't -- when we're not consuming so much is we're not actually giving so much.
MARGARET WARNER: Author and Sunday Times columnist India Knight has just written "The Thrift Book," a guide to coping with the recession. She says the end of the free-spending days has come as a shock to many, including herself.
INDIA KNIGHT, Author: I don't think anybody thought that they'd be in this situation. You know, you assume you're safe. You assume that your job is safe, your house is safe when you get to a certain age and a certain level of earning.
MARGARET WARNER: Yet she also believes the era Britain's just been through was exceedingly shallow.
INDIA KNIGHT: People have been consuming more and more and more and defining themselves entirely by what they consumed, which, you know, is not right.
MARGARET WARNER: Now she thinks that's changing.
INDIA KNIGHT: There is I think within the British psyche the ability to kind of stiffen the upper lip, and get on with it, and be frugal in a way that's actually quite impressive and, you know, a lost art.
And certainly I think there's going to be a return to things like people altering their clothes rather than throwing them away, people maybe cooking more at home, all those sort of domestic -- post-war domestic skills. All of that is now not kind of embarrassing and penny-pinching, but just a sensible thing to do.
MARGARET WARNER: Retirees Ruby and Ted Sasin, who lived through Britain's war and post-war years, say living with less isn't so hard.
RUBY SASIN, Retiree: And I never waste anything. I hate to throw anything away at all. I would rather use it. I'm going home to a shepherd's pie tonight. That was part of a roast dinner this weekend.
MARGARET WARNER: One thing seems clear: Going home to leftovers will be just one of many challenges the British people face in the coming year.
JUDY WOODRUFF: You can view Margaret's previous reports from Britain and France on our "World View" site. Visit us at PBS.org. Just click on "TV Shows."