Imagine your worst nightmare, then the horror as you realize that it’s real. The economy is behaving like a critically ill Covid 19 victim. Cash is running out of both businesses and the overall economy in a dramatic way; in the same way that a severely ill Coronavirus patient struggles for air. This could be similar to the Great Depression of the early 1930s when stock markets collapsed some 80 per cent.
The Chancellor last week announced numerous extraordinary measures which are unprecedented. They are well intentioned and he deserves real credit for thinking big. But much more is needed, fast. They will turn out to be just the amuse-bouche before the starter you might enjoy in one of the thousands of restaurants which are now closed and face oblivion.
The business support package of over £300 billion sounds good, but will do nothing for most firms as it is only for the small number of large investment grade firms.
I rang my business bank and was told about the criteria for the separate Coronavirus Business Interruption Loan Scheme of up to £5 million. These are so restrictive that very few businesses will take advantage of them. Most directors will simply not sign personal guarantees for these loans. The criteria must be eased.
“Whatever it takes” were Rishi Sunak’s words. Well, it will take a lot more, urgently. I have five point plan to save the UK economy. Think of it as a five course meal.
The first course is that as well as VAT, the Chancellor must defer all National Insurance, payroll tax and Corporation Tax payments for the next 6 months, by all companies who want to, for 9 months. This will give real cash breathing space for companies large and small. The price of this will be more deferral than cost.
The second course is to cancel all business rates for all firms for 12 months, at a cost of some £30 bn. His current plans for business rates are just way too timid.
The third course is to lend any SME or self employed person up to £50,000 for 24 months, at 2% interest. This can be done via overdrafts at the existing banks, this can be implemented in a few weeks. If 6 million SMEs and self employed take it up, the loan Value is £300 billion, similar in size to the Chancellor’s loan scheme for big businesses. Crucially this will be much more effective at the ground level.
The fourth course is the big, main delicacy. A £1,000 payment in each of the next 2 months, in April and May, for every adult above the age of 18. It would cost some £80 billion. It could be done quickly via payroll and HMRC, or via the electoral roll. Critics will bleat about better targeting and helping the wealthier, but there just is not time. Get it done, to adapt a favorite Boris phrase.
The last course of this meal could end up making the Government enough money over time to pay for all the support measures. In the Second World War the stock market was closed except for gilt markets. It would be better to keep it open, but the Government buy up to £400 billion worth of shares and corporate bonds. This could be some 20-25 per cent of the market. There is precedent for this. Hong Kong’s Government made billions after it bought 7.3 per cent of the stock market there in the mini crash of August 1998. Over 5-10 years, as the economy recovers, so UK share prices would soar.
All these measures can be funded by the gilt market, with the Bank of England acting as buyer of last resort when needed. Conservative, free marketeers would hate it, but it’s the best way to protect the people, businesses and reduce the cost. It’s called survival. The alternatives, be they food riots, and many millions being unemployed are far, far worse.