The scale of the Chancellor Rishi Sunak’s Covid-19 rescue package for Britain’s hard-pressed businesses — big corporations and smaller enterprises — is startling in both its scale and ambition.
At its core is a promise to help the bigger corporations survive the crisis with £330 bn of easy credit from the Bank of England that is designed to nurse them through the epidemic and to make sure as many jobs as possible can be saved.
But it was accompanied by unprecedented help for the High Street and smaller family retail enterprises which, among other things, have been liberated from the venal burden of business rates for 12 months — and hopefully forever.
Chancellor Rishi Sunak’s Covid-19 rescue package for Britain’s hard-pressed businesses — big corporations and smaller enterprises — is startling in both its scale and ambition (file photo)
Just a week ago praise was being heaped on Sunak for his audacious ‘coronavirus’ Budget, consigning austerity to history and promising an immediate £30 bn of fiscal stimulus.
He has now delivered a package of unimaginable boldness — some 11 times greater and with an additional £20 bn aimed at hard-pressed smaller enterprises, ranging from your local pub, to the bed-and-breakfast establishments in the Lake District and the corner shop in Middlesbrough.
Crumbling
The objective of all of this —and of further assistance, yet to be negotiated, for workers and the crumbling airline industry — is not just to keep commerce alive and kicking in a crisis. It seeks to restore confidence so that when this current peril is over, our economy, the financial markets, pension funds and savings will recover.
Sunak’s catchphrase, ‘we will do whatever it takes’, was delivered with aplomb by someone who has been in office for less than two months. And I believe it will begin the hard process of healing the blind panic which has gripped highly volatile financial markets, the nation’s boardrooms and every household in Britain.
The last time such a phrase was used was by the then president of the European Central Bank, Mario Draghi, in 2012 when the euro currency was on the verge of collapse. His words inspired market confidence and turned the tide.
In the build-up to last week’s Budget, all the talk was of an end to austerity by lifting the limits on public investment in trains, roads and hospitals from 2 per cent of the national output (GDP) to 3 per cent.
In stark terms, Sunak’s announcement amounts to getting out the big cannons and firing 12 per cent of GDP at the problem.
Add to this the measures already baked in the Budget and the likely special help to come for British Airways, Virgin Atlantic and UK-based carriers, and this Government’s commitment to seeing off the economic challenge of coronavirus could be compared with World War II, when borrowing reached 20 per cent of output.
In terms of market impact, the Sunak emergency package — coming just hours after Donald Trump announced a near £700 bn rescue effort for the U.S. economy — means Britain can claim to have done at least as much as President Macron, who rolled out £272 bn of assistance for the French economy (a similar 12 pc of national output) on Monday.
Nevertheless, there are certain to be complaints from some corporate chiefs about the extent of the help given.
Sunak during a media briefing on coronavirus. The Chancellor’s announcement amounts to getting out the big cannons and firing 12 per cent of GDP at the problem
Yes, healthy companies will be able to borrow to pay employees, and keep their supply chains open, and so on. But in going to the Bank of England for cash, they will be adding to their debt load and will be paying interest.
Moreover, new Governor of the Bank of England Andrew Bailey has made it clear there will be no free lunches for badly run companies. Of course, the rescue package has come too late to save the likes of regional airline Flybe, fashion and furnishings outfit Laura Ashley (which fell into administration yesterday).
And it may not be able to help Intu, owner of the Trafford shopping Centre, or movie distributor Cinemax — both of which are teetering on a debt precipice.
Security
Another major complaint is that while it is fine to bail out companies with a special loan facility, not enough has been done to ensure job security and the incomes of workers who face layoffs as restaurants, hotels and bars close.
The U.S. plan is likely to involve some kind of ‘helicopter money’ — cash paid directly to every employee through the tax system. Essentially, it is a universal tax rebate designed to keep consumers spending and their heads above water.
Such a system, favoured by the late, great monetary economist Milton Friedman, was used to great effect in Australia during the financial crisis.
There have been suggestions that the UK Government could opt to pay a temporary universal basic income, based on median pay, to make sure no employee is disadvantaged by what amounts to a natural disaster beyond their control.
But it is my understanding that the Treasury hopes the Bank of England loan scheme is sufficiently generous for companies to keep paying wages and avoiding layoffs.
And there was, we are reminded, generous provision for extended sick pay and assistance through existing welfare schemes — such as universal credit — to make sure people in the gig economy or on zero-hours contracts can receive fast-track benefits.
It is my understanding that the Treasury hopes the Bank of England loan scheme is sufficiently generous for companies to keep paying wages and avoiding layoffs (file photo)
The effectiveness of what has been announced will largely be determined by how quickly regulation and bureaucracy can be swept away and money accessed by those in need.
The British Business Bank, which has been given £5 bn to dish out to smaller enterprises, has a reputation for inefficiency. Pressure might have been relieved more immediately by deferring or cancelling taxes such as VAT.
Nevertheless, the positivity with which Boris Johnson, the Chancellor and the Bank of England are approaching this crisis should not be underestimated.
The Bank has slashed interest rates and has now bolstered lending to big businesses.
Overall, it should be a massive boost to an economy which is destined to fall off a cliff in the next three months — by between 10 and 20 per cent, a far bigger fall than during the financial crisis.
That is going to hurt and, despite all these efforts, the lack of directly paid support for employees, as outlined above, may prove to be an economic and political mistake. Relying on the kindness of bosses to keep paying wages on borrowed money, for a long time, is placing too much trust in their hands.
Recover
What we do know, from the evidence of such similar ‘natural’ disasters, is that once they are over, the bounce is very swift.
The evidence from China and the Pacific, where Covid-19 emerged at the turn of this year, is positive.
Output has begun to recover, the small coffee shops are re-opening and production lines are being fired up.
The big banks are reporting a fast return to some kind of normality.
A further package of measures which directly places cash into the pockets of British citizens would feel more real than promises of mortgage holidays and access to benefits. But even in wartime, it is not possible to bail out everyone without denuding the nation’s hard-won financial and economic credibility.