Keeping the UK open

Governments around the world are taking extraordinary policy measures to deal with COVID-19. Compared to other European and Asian nations, the UK government was slow to impose drastic social-distancing measures. But the government’s economic response has been far clearer and quicker – among the best in the developed world.

The Bank of England and the Chancellor last Wednesday (Budget day) showed exactly what is needed from authorities. Compare the coordinated response from UK policymakers with the disarray in Europe, where the ECB and national governments undercut and second-guess each other’s announcements. Or the US, where the Federal Reserve’s emergency policy responses are completely out of sync with President Trump – sending mixed messages at a time where clarity is key.

Rishi Sunak delivered more of the same shock-and-awe approach last night. “Baptism of fire” doesn’t even begin to describe the Chancellor’s first month in office – but so far he seems to be making the right moves. Initial COVID-19 related measures total over £30bn. That’s more than the US has done, in an economy nearly ten times bigger. Addressing every possible worry in a single policy is impossible, so he’s taking it step by step, as we saw in his statement last night.

No one wants another 2007 Northern Rock scenario, so the government is securing the banking system by guaranteeing loans, while the BoE keeps the financial pipes clear and the cogs turning. A rescue package of £330bn of business loans is a big number – 15% of GDP. And if more is needed, the government will “provide as much capacity as required”. Financial system secure.

Direct support of £20bn for businesses is also a help. This went further than the budget, which offered businesses tax breaks, and moved to actual cash grants to keep firms afloat. These cash injections are targeted at the most affected sectors for now – pubs, restaurants, high street shops etc. This is a good start, but we believe that the policy will have to be extended further, covering almost every kind of small business in due course.

Many commentators have called for more to be done to support households – suggesting that these measures are too focussed on businesses. We agree.

Supporting small businesses right now keeps the UK open and functioning. Next, Mr Sunak will likely be taking advice from the Home Office on how best to support families and households. Finally, he should turn his attention to large, public businesses – the airlines, carmakers etc. UK voters won’t support helping companies before helping people, and there are more voters than shareholders.

Keep the shops open, then look after individuals, then look after the big companies. Expect more soon.