Rishi Sunak fires first of the Big Bazookas

Rishi Sunak has fired the first bazooka to save Britain from going bust. At an emergency press conference earlier this evening, the new Chancellor announced the government will pump billions of pounds into the economy to keep it on life support as the virus crisis bites deeper into the country by the day.

Around £330 billion of loans to businesses – big and small – will be guaranteed by the government. That’s an enormous sum, equivalent to 15% of British GDP.

The aim of the package is to provide support for companies devastated by the coronavirus outbreak over the next few critical months, and to keep them breathing so that they do not have to lay off workers.

The emergency measures include £330bn for companies to access loans, support for airlines and airports, a business rates holiday for most retail companies, help for small firms without insurance and a three month mortgage holiday for all customers with problems.

By far the most important measure was the funding of grants of between £10,000 and £25,000 for the UK’s six million SMEs, the companies which provide most of the country’s jobs and growth. “That means any business who needs access to cash to pay their rent, their salaries, suppliers or purchase stock will be able to access a government-backed loan or credit on attractive terms,” he said.

Yet despite Sunak’s assurances, there were two gaping holes in this bazooka. He did not mention support for the nearly six million people in the UK who are self-employed or sole traders, representing about a fifth of the 32 million people in work.

This was a big omission: for these are the people who have no statutory pay and many of whom have little savings, working on a month by month hand-to- mouth basis.

Sunak should look at what other countries are doing to protect their self-employed. Norway, for example, has said it will provide its self-employed people with 80% of the average of their income over the previous three years. Admittedly, Norway is a wealthy country but there’s no reason why the UK could not provide similar support

The government’s second mistake was not having the new Bank of England Governor, Andrew Bailey, up there on the rostrum with the Prime Minister, Boris Johnson, and Sir Patrick Vallance, the chief scientific officer, during the press conference.

Having Bailey alongside them would have given a little more confidence, particularly as both the Chancellor and the PM promised that they will “do whatever it takes” to provide support to the country’s economic as well as public health.

For “whatever it takes” may well require more firepower from the Bank of England to help with further funding. It’s the Bank’s Bailey who will be in the front line helping to organise the new bonds for this new lending for the country, and who will be underwriting the cost of these loans to businesses as most of them are unlikely to be repaid.

As one banker said to me this evening, this is just another form of QE without giving it the name. “This is the Virus Debt, just as we had the National Debt from World War 2.”

To his credit, Sunak’s bazooka was big – and not bad as a start. But it will not be the last weapon needed to keep the country alive during this new and alien war. There must be more to come.