People have started accusing the Government of ‘making it up as they go along’ of late, implying that ministers should have had a hard-baked plan in the locker outlining precisely what to do when a global pandemic hits our shores.
The truth, as anyone who has spent time in Government knows, is that you can, and should, do as much pre-planning as possible, but you have to respond to fast-changing situations with fast-paced decisions. That decision-making is done under pressure, in response to events, and is hard work. My admiration for those at the frontline in the current circumstances is almost boundless.
That admiration has been enhanced by the speed and scale of the economic response drawn up by a new Chancellor and his team, in these most challenging of circumstances. As the FTSE fell for the ninth week on the trot, the pound slid to its lowest level against the dollar since 1985 and economists are predicting tens of billions of pounds to be wiped off UK GDP, Rishi Sunak announced unprecedented measures to try to protect our future economic potential.
‘Unprecedented’ was his word, and it was the right one. Never before had the UK guaranteed workers’ wages in the way it has through the Coronavirus Job Retention Fund and the fact that this move was acclaimed by trade unions, business groups and employers alike shows just how important it might prove to be for the UK economy. Capital Economics suggested it could save as many as 800,000 jobs in the coming months.
Coming on top of hundreds of billions of pounds of loan guarantees, £200 billion of fresh Quantitative Easing, grant funding and business rates holidays for retail, hospitality and leisure businesses, and interest rates falling to their lowest ever levels, nobody can claim that the Government and the Bank of England aren’t pulling out plenty of stops… but they’re not yet pulling out all the stops. They have little choice but to do so.
The measures over the last few weeks have amounted to nothing short of a nationalisation of our economy. Columnists like Matthew Parris and Philip Aldrick have asked legitimate questions over the weekend about whether or not the approach taken has been the right one – but once the economy was, in effect, told to close down, the Government had little option but to step in. But once you pop, you can’t stop, as the saying goes. So the Government now needs to go further.
Sunak acknowledged last week that more needed to be done for larger and medium-sized businesses and that he would come forward with measures this week. The short-term issue is around credit ratings, with large numbers of businesses already being downgraded and therefore unable to access support through the Bank of England’s Corporate Financing Facility. As ratings fall, funding consequently becomes more expensive and, as economic activity slows, the numbers no longer stack up. A Government-backed loan guarantee scheme applying to larger businesses who need support is required sooner rather than later.
The basic principle and framework for such a scheme is already in place through the Government’s Coronavirus Business Interruption Loan scheme, which is targeted as businesses with a turnover of less than £45 million. The scheme is overseen by the British Business Bank but its effectiveness relies on the 40 lenders currently accredited to operate within the scheme. The major banks are all included in that number but, as alternative forms of finance have risen in importance, it is clear that the scheme might not reach all those businesses who need support.
Indeed, non-bank lenders now provide an estimated 30% of SME lending to more than 400,000 small businesses and both those lenders and the SMEs themselves might be at risk if the current approach isn’t extended. Not only would SMEs benefit from having more lenders accredited –in particular fintechs and others that can process large volumes at pace – but those lenders might well also need support to ensure they remain able to access and offer funding, perhaps by guaranteeing their back book and / or any future loans they make.
Such steps would help ensure that the economic backbone of the UK economy – the small business landscape – is protected as well as possible in the coming months. But to really make sure of that, the Chancellor and his team need to turn their attention in the coming days to the millions of self-employed people up and down this country.
The recent steps taken to defer payments of VAT and any self-assessment taxation due are welcome ones but, despite their generosity and the price-tag attached to the VAT deferral (some £30 billion), they don’t go far enough. A huge number of freelancers operate under the VAT-registration turnover threshold of £85,000 and this reflects the fact they are not making enormous amounts of money.
Although some of the figures being put about regarding the amount of Government support currently available is way off the mark (it has been suggested that the self-employed can access less than £100 a week, whereas the total figure, when various benefits are combined, can amount to more than £1500 a month) it is clear that an economic shock of the sort currently being experienced could derail many of them entirely.
The Government therefore needs to consider some sort of Temporary Income Protection Fund, so that freelance businesses can remain afloat in the coming months. Whether in the form of grants or loans, it is only through this financial underpinning that we can be sure this vital part of the economy will still be able to operate when we come out of the other side of this.
If these various measures are introduced, alongside targeted support for other sectors of the economy – like aviation and higher education – whose potential future viability is threatened by recent developments, the Government might be able to keep the economy on life support in the coming weeks and months.
If someone had suggested to me that I would be arguing for such steps a few weeks ago, I would have found the idea risible. But we live in unprecedented times and unprecedented times call for unprecedented measures. We have already seen unprecedented steps taken but there remains further to go: the Government must keep making it up as they go along.
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