By Faisal Islam
“Whatever it takes” was the promise from the chancellor to support businesses, families and individuals through the coronavirus crisis. It was a phrase successfully used by a European central banker eight years ago – and effectively calmed a significant eurozone crisis.
But this intervention is a bigger bazooka than that, because the challenge of coronavirus and the measures to contain it pose to peoples livelihoods and wellbeing are more significant.
The extraordinary figure here was £330bn in state-backed loans for all businesses through the banking system with the help of the Bank of England.
That is 15% of the value of the economy. Normally economic announcements are worth a fraction of a percent of national income – this move is about a fraction of our entire GDP. And that is because the self-isolation and suppression moves announced yesterday will remove a chunk of our economy.
At a stroke, every single forecast number in the Budget the chancellor gave less than a week ago are out of date. We are in an entirely new world. A wartime effort, with wartime deficits to cover it.
It’s not just there will be less tax and more income support required, which typically causes deficits to spike in recessions. Now we face the need for subsidy and provision of incomes in these very tough times. This is not a bailout. It’s a very expensive bridge that the government cannot afford to fail to build.
Companies and trade bodies welcomed the announcement, but said they needed to work through the fine print. Like several sectors, the aviation industry has warned it is in a fight for survival as travel bans are put in place and travellers delays bookings.
Johan Lundgren, chief executive of Easyjet, said Mr Sunak’s measure were welcome, but added: “Airlines are facing significant pressure and without government action there is a real risk to the industry. It will be important to work through the detail, but we are already talking to government.”
Retailers, too, have warned the future looks grim without help. The British Retail Consortium (BRC) said the new measures would help ease the burden.
BRC chief executive Helen Dickinson said: “The business rates holiday, together with the announcement of a loan package, represent a vital shot in the arm for a sector facing enormous uncertainty. We still need to see the details and make sure that retailers can access cash with the minimum of delay, but it is a welcome and necessary first step to protect jobs.
Adam Marshall, chief executive of the British Chambers of Commerce, said the size of the grants and loans were good news for smaller businesses. “But what’s going to be hugely important . is that cash actually gets to the front line and gets there quickly,” he said.
Paul Johnson, director of the Institute of Fiscal Studies, said the business rates holiday was targeted directly at the retail, leisure and hospitality sectors. But he warned: “This is a substantial level of support. However, it is probably not well targeted at saving jobs in those industries. It will remain as expensive to pay people and if demand is down then jobs are likely to go.”
He said it may be necessary to cut employer national insurance contributions, delay increases to the National Living Wage, and increase support for individuals through Universal Credit.
Source: bbc.com
