Every worker and business owner must receive government cash handouts to prevent a complete economic meltdown from coronavirus, an ex-Tory Treasury minister says. Rishi Sunak, the chancellor, is being urged to give billions in compensation when he unveils an emergency financial package to ward off disaster for firms and their staff from the UK going…
Rishi Sunak, the chancellor, is being urged to give billions in compensation when he unveils an emergency financial package to ward off disaster for firms and their staff from the UK going into partial lockdown.
The support has been accelerated after the sudden U-turn that saw Boris Johnson urge the nation to shun pubs, restaurants and other venues, to avoid “all unnecessary” contact – for several months, or even longer.
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With last month’s Budget in tatters – the £12bn offered now hopelessly inadequate – Mr Sunak is expected to focus most help on the leisure and travel industries.
But the bar has been set by the staggering €300 billion package announced by Emmanuel Macron, the French President, with a vow that “no business whatever its size will face risk of bankruptcy.”
Jim O’Neill, a Treasury minister under George Osborne, said Mr Sunak must “compensate all businesses and all income earners”, calling for a “people’s quantitative easing”.
The measures so far were a “replica” of the response to the 2008 financial crash, but the peer warned: “This is, as we all we are now starting to learn, an entirely different crisis
“Virtually none of those things, particularly cutting interest rates, are going to have the slightest bit of impact,” he told BBC Radio 4’s Today programme.
Pointing out the coronavirus-inflicted Chinese economy slumped by 20 per cent in February alone, Lord O’Neill said no Western economy could cope with such a hit.
“You need to give them some kind of income transfer, whether it be business or individuals, in order to get them at least through two months of these tough measures,” he urged.
“If we don’t do that, we are not going to be able to stop hundreds of thousands of people being laid off and businesses going bust all over the developed world.”
The government’s independent fiscal watchdog said that ministers needed to take a “blunderbuss” approach to supporting the economy and not be “squeamish” about adding to state debt.
Robert Chote, chairman of the Office for Budget Responsibility, told a House of Commons Treasury Committee hearing: “This is not the time to be squeamish about one-off additions to public sector debt.
“It’s more like a wartime situation – that this is money well spent.”
He added: “The priority is not to worry about dotting the Is and crossing the Ts of fiscal rules but to do what is necessary for the economy and the public.”
The OBR cautioned there would “inevitably be some scarring” on the country’s economy from the coronavirus shutdown, with a number of firms expected to go bust amid the crisis.
But it said the hit to growth and the balance sheet was expected to be “large but temporary”.
“The more serious this is, the more blunderbuss you have to be in the approach,” Mr Chote told MPs.
Sir Charles Bean, a member of the OBR and former deputy governor of the Bank of England throughout the financial crisis, said the Government needed to essentially replace lost output through extra borrowing.
“Let’s say the hit to GDP (gross domestic product) is something like 5% a year, then if that’s what you’ve taken out, that’s what you’ve got to put back in,” he said.
Businesses and the self-employed urgently need our help. The Chancellor produced an excellent package of measures in the Budget a week ago but things have moved on. This is not about the ability to borrow but the ability to balance incomings and outgoings. 1/3 pic.twitter.com/dKImd0ZArX
Prof Bean said it was critical to get money to “the most exposed” households and businesses.
“There surely will be people working in the gig economy, in low-paid jobs, who have got laid off and it is crucial somehow or other that their incomes are made up,” he said.
“EquaIly, looking forward, that businesses don’t end up going to the wall simply because of a catastrophic fall-off in their revenues.”
Mr Chote told MPs: “In some ways it’s like a wartime situation – we ran during the Second World War budget deficits in excess of 20 per cent of GDP five years on the trot and that was the right thing to do at that time.”
Labour also said Mr Sunak must act “on a scale sufficient to meet this crisis”, having called for rent and mortgage payments to be deferred and the rules for claiming Universal Credit to be relaxed.
“We need an unequivocal statement from the chancellor today that people’s incomes will be protected and that businesses will be fully supported to prevent any going out of business,” said John McDonnell, the shadow chancellor.
Mr Osborne himself said hundreds of billions must be spent “to underwrite bank loans to businesses and help them and their employees through this crisis”.
And Tory MP Andrew Griffith – a former chief business adviser to Boris Johnson at No 10 – said: “What we need are measures focussed on two of the biggest costs – people and property – and the government to step in and protect the ability of firms to keep employing their staff even in the face of little or no revenues coming in for the next 12 weeks.”
The pressure comes after the hardest-hit sectors severely criticised the prime minister, warning his crackdown would cause “immense damage” without emergency help.
Kate Nicholls, chief executive of trade body UK Hospitality, said Mr Johnson’s announcement had been “catastrophic”.
“The government has effectively shut the hospitality industry without any support, and this announcement will lead to thousands of businesses closing their doors for good, and hundreds of thousands of job losses,” she said.
Emma McClarkin, chief executive of the British Beer and Pub Association, echoed the view, saying: “The very existence of thousands of pubs and a lot more jobs is now at risk.”