In every crisis there's always a cry from the media and the general public for 'action this day'. The 'Something Must Be Done' crowd are in full cry. And when something is 'done', it's rarely ever considered to be enough.
Yesterday the government announced a raft of measures to help business get through this crisis, including £330 billion of guaranteed loans. Good news, but questions are already being asked about how easy it will be to access these loans and whether they will be enough to stem the raft of companies who are laying off staff by the hundreds and thousands. People are also complaining that apart from a three month mortgage holiday for home owners, there was scant little to help individuals out of the predicaments they find themselves in through no fault of their own.
No government could have prepared fully for a crisis like this. Even the Treasury, with all its power and influence, must be floundering. I am not at all surprised that there isn't an all encompassing plan, ready to pull off the shelf. So we must get used to announcements coming out day by day. I fully expect to hear much more of plans to alleviate hardship for individuals over the next few days, but there's no point in announcing something that hasn't properly been worked through.
Let me turn to Rishi Sunak's statement yesterday. Reading through the papers today I'm left with the distinct impression that it's too complicated and not joined together. And quite how a lot of it will be administered is unclear to say the least.
Earlier this morning I received an email from Lance Forman, the former Brexit Party MEP and owner of H Forman & Son, purveyors of the finest smoked salmon to restaurants and more widely. It's worth quoting in full, as I think he makes some very important points.
The key problem for the economy is that businesses have been interrupted and will remain so for a period of months, indeterminable at this stage. There is no way most businesses in the hospitality or leisure sector can take advantage of the loan offered by Rishi Sunak as they are not in a position to make a profit for a number of months at least to be able to pay back the loan at a later date. It makes more sense for them to liquidate the business, sack all their staff and not pay their suppliers, or indeed the taxman who is often the largest creditor. Such a response will set off a domino chain which could be devastating for the economy. We know from our own experience that this is what is starting to happen now. Helping the staff of those businesses with mortgages does not help the business survive and thus the future of the jobs.
In normal circumstances when a business has an interruption it claims on its insurance and that way the business has the confidence to be able to continue. It is a disgrace that the insurance industry is washing its hands of this interruption now and the Government needs to put pressure on the industry to step up. But in the meantime the government must itself become ‘insurer of last resort’. It did something similar with terrorism cover in 1993 after the bombing of the Baltic Exchange in London when it set up “Pool Re” and more recently with Flood Re in 2016 as the insurance industry were failing to cover for losses then. It worked with the insurers to ensure businesses were fully supported.
What the Government needs to do now URGENTLY is set up a “COVID Business Interruption Fund” which allows businesses to claim on a monthly basis for losses incurred and it should pay out with a very short turnaround ie. days, not weeks, without the convoluted investigations typically made by insurers. Companies could submit their last set of audited accounts to show what their gross margins are and the losses and the Government should reimburse right away. The process should be simple. Once the coronavirus subsides businesses can later be audited to ensure the claims were fair and reasonable. Perhaps the insurance industry could supply the personnel to do these checks after the event.
By stepping up in this way, there is absolutely no reason why any business should go bust or lay off staff as their gross margins would be protected. The Government would NOT need to pay people’s mortgages or give rates relief (although the latter is needed anyway aside from COVID19). A chain of bankruptcies could be halted and we could remove the business panic which is gripping the economy. Businesses would be able to continue and whilst not actually trading perhaps get on with some of the tasks set aside for quiet periods, like repairs and maintenance.
Furthermore by acting as I have suggested, the Government will only have to deal with thousands of business affected rather than potentially millions of smaller claims, so the management of the process will be much simpler.
I hope the messages in Lance's email reach Number Ten and the Treasury as his suggestions seem eminently sensible to me.
I have never been in favour of a Universal Basic Income, but I think this is something that must be looked at now, on a temporary basis. Some households are going to be severely affected within a very short time. A payment of say, £1000 to each household in the country would cost in the region of £28 billion. It's a massive amount of money, but could be recouped over time when things revert back to normal. I have no idea how easy it would be to administer, but I'd have thought it could be implemented by local authorities who hold all the records of properties in their areas. OK, it seems ridiculous that people at the top of the income scale should get the money too, but people who don't actually need the money could be encouraged to donate it to food banks or charities. Ease and speed of administration are the key things here.
People need to feel that the government knows what it is doing and is reacting to their needs. By and large, I think that has been the case so far, and polls indicate that there is general support for the government's approach. However, that could change in an instant through some ill chosen words or failure to act of something which the public thinks is important. They're walking a very dangerous tightrope.
We haven't reached the worst of this crisis yet, and may not do so for a few weeks. Things are going to get a lot worse before they get better. Schools will soon be closed. All public gatherings will be banned. The whole country will be put on lockdown, similar to France and Belgium. People are calling for all these measures to be taken now.
We are at least a week or two behind other European countries in the development of the virus, so the timing of these measures will be crucial. However, I expect both these measures to be taken sooner rather than later. The lockdown will probably be for months rather than weeks. We may well see a decline in the number of cases and deaths in the summer, but the virus may well return in the winter.
A vaccine is unlikely to be ready before sometime in 2021, so we may not emerge from this crisis for a very long time. The government will need to be totally transparent about this and all of its policies need to reflect the reality of where we are, rather than where we might hope to be.
It's going to be a long haul.