Rishi Sunak has unveiled a £350 billion bailout to keep Britain’s businesses and workers afloat through a coronavirus crisis that could last more than a year.
The chancellor announced a three-month mortgage holiday for homeowners, handed out government-backed cheap credit, tax breaks and grants and promised industry bailouts.
“We have never in peacetime faced an emergency like this,” the chancellor said last night as he abandoned “orthodoxy” and “ideology” in response.
There wasn’t any other formal support for people whose roles may be at risk but Mr Sunak said he would go “much further in the coming days” and was working with trade unions and business leaders to develop “employment support” for those who lose incomes.
Mr Sunak stressed that there would be further measures to help workers. “We plan to go further with employment support that will be direct fiscal action,” Mr Sunak said. “We want to build a bold and ambitious employment support package.”
The Treasury is looking into options before committing funds, which is likely to cost billions of pounds more than the £32 billion direct fiscal support already committed to the coronavirus fightback.
The chancellor faced criticism for including “mortgage holidays” in his package but failing to address the needs of people who rent. He said that Robert Jenrick, the housing secretary, will announce new measures to “protect” people who rent shortly.
Jeremy Corbyn said: “The government has announced a mortgage holiday for homeowners but it must suspend rents too. Millions of people rent in the UK. Ban evictions. Now.”
Business rates holiday
Business rates are a tax on commercial property based on the value of a company’s premises. The tax is contentious because the burden tends to fall on those who need property in expensive locations, such as town centres. Mr Sunak said he would give all retail, hospitality and leisure businesses a one-year holiday from their rates bill.
Mark Jones, chief executive of restaurant group Carluccio’s, said: “The package is a good start, especially rates relief. Let us hope it is enough in the coming weeks and months.”
Small and medium-sized companies often have scant reserves to help them through a lean period and many fear failure without urgent aid. Pubs, bars and restaurants were reporting a downturn in trade of more than 50 per cent even before the government advised the public to avoid them.
Mr Sunak announced an expansion of the coronavirus business interruption loan scheme, under which the government will underwrite the risk of bank loans to small and medium-sized companies. The initiative was announced in last week’s budget but Mr Sunak said he would increase the amount businesses can borrow at affordable rates from £1.2 million to £5 million, while the first six months of the finance will now be interest-free.
The scheme, which will be launched next week, is based on the Enterprise Finance Guarantee, a similar programme set up to help small companies cope with the fallout of the global financial crisis. The EFG was mis-sold by at least one major bank, was often poorly understood by local bank managers and has been called cumbersome and bureaucratic by its critics.
Ian Cass, managing director of the Forum of Private Business, said: “A loan is not going to solve the problems of a company that’s on the brink, it risks pushing the problem down the road.”
Big business loans
Airlines, hospitality and leisure companies and manufacturers are among the industries that have warned of massive layoffs as travel restrictions and social distancing measures bite.
Mr Sunak said he had agreed a Treasury and Bank of England scheme for large companies that would operate much like quantitative easing (QE).
Companies that were classed as safe investments before the crisis but now risk running out of money will be able to raise vital funds by issuing commercial paper, a form of debt, in the markets that the Bank of England will ultimately buy. The size of the scheme will depend on the demand.
Large businesses risk being cut out of the markets as their credit profile deteriorates. If downgraded from investment grade to junk, the higher borrowing costs could destabilise the business.
Under the arrangement, the Bank will issue reserves as it does under QE to buy the paper issued by the struggling companies. The loans will be issued to asset managers who ave arranged to sell them on to the Bank. The Bank can only operate in secondary markets, which explains the convoluted structure.
About 700,000 of the nation’s smallest companies will get a £10,000 grant to help them in the months ahead. A further £25,000 grant will be available for retail, hospitality and leisure businesses operating from small premises with a “rateable value” for tax purposes of between £15,000 and £51,000.
Speaking after the announcement Dame Carolyn Fairbairn, CBI Director-General, said: “The Chancellor has taken substantial steps in unprecedented times. Today’s massive increase in Government-backed loans, higher cash grants and widened business rates relief for some sectors will help firms protect jobs and businesses. All now need to be delivered on the ground with speed and simplicity.
“The Chancellor is right to commit to doing whatever it takes.
“The new financial package provides valuable support to areas facing immediate stress, including hospitality and retail. As next steps, it will be vital to stay ahead of the economic impact, not waiting until firms are on the brink. Wider whole-economy measures like regulatory and tax relief in areas including VAT and National insurance will support a broader range of firms in real need.
“Urgent decisions are also needed on wages. An immediate mechanism is needed to top up wages for firms with no choice but to reduce hours for lower paid staff, so they can keep them employed and get through to the other side.
“It is clear this situation will not stand still, so nor can the economic support. The pace of change is too fast to play catch up.”