London: This is not a time for ideology and orthodoxy. This is a time to be bold. A time for courage, said Rishi Sunak, the UK’s Indian-origin finance minister, as he summed up the British government’s approach towards the daunting economic fightback against the novel coronavirus pandemic and broadly reflective of the approach taken by most other countries across Europe.
The words from a landmark speech last month by a Chancellor of the Exchequer from the UK’s ruling Conservative Party, traditionally staunch believers of free market principles, unleashed an unprecedented set of state measures targeted at protecting jobs and incomes for the private sector as the country went into lockdown mode to try and curb the spread of the deadly virus.
The coronavirus pandemic is a public health emergency. But it is also an economic emergency. We have never, in peacetime, faced an economic fight like this one, said Sunak, as he tabled a series of mini-Budgets just days apart over the last few weeks to revive the country’s economy.
He began by announcing an unprecedented package of government-backed and guaranteed loans to support businesses big and small.
An initial 330 billion pounds of guarantees equivalent to 15 per cent of the UK’s GDP was made available, with a promise of more as required.
This meant any business requiring access to cash to pay their rent, salaries of their employees, suppliers, or to purchase stock, had the option to access a government-backed loan on attractive terms.
Soon the hedge-fund-manager-turned-finance-minister bolstered this offer further, introducing the UK to a lesser-known terminology furlough or forced leave.
Under the Coronavirus Job Retention Scheme, companies now have the option to furlough some or all of their staff and seek a government grant to pay them 80 per cent of their monthly salaries up to 2,500 pounds a month to prevent them from forced redundancies or sackings.
The scheme went up and running this week and had attracted 140,000 requests to join, instantly saving nearly 1 million jobs.
The UK government has since unveiled a series of further measures including VAT waivers and tax payment holidays, including for those classified as self-employed tax-payers within the private sector with the Self-Employed Income Support Scheme.
Besides, over 700,000 retail, hospitality and leisure businesses have had their business rates waived for this year.
Most recently, Sunak was back at the Downing Street podium to announce a Future Fund, a 500 million pounds loan scheme for high-growth companies, including start-ups, that may be struggling through the lockdown.
There are some reports that the UK Treasury is considering offering 100 per cent guarantees on loans of up to 25,000 pounds for the UK’s smallest firms as a further step.
We are making great progress on getting much-needed support out to businesses to help manage their cashflows during this difficult time with millions of pounds of loans and finance being provided to hundreds of firms across the country, Sunak declared, claiming that his serial measures for businesses through the crisis is the most comprehensive set of policies put in place by any economy of the world.
However, a number of other European economies have also been putting unprecedented measures in place to help the private sector tide through the lockdown on usual economic activities.
The European Union (EU) has been working on its own set of collective policies for its member-countries, which would exclude the UK in the long term as it formally left the 27-member economic bloc at the end of January.
This pandemic is putting our societies under serious strain. The well-being of each EU member state depends on the well-being of the whole of the EU. We are all in this together, European Council President Charles Michel recently said.
EU leaders have agreed to task the European Commission with revamping the EU’s next seven-year budget and devising a recovery plan.
While no figure was put on that plan, officials believe that 1-1.5 trillion euros may be needed.
The uneven impact of coronavirus within the member countries, with Italy and Spain particularly hard hit and Germany, Austria and the Netherlands on the lower end of the scale, has caused some unease about the true scale of the measures.
In France, the government has taken steps such as deferring tax payments, with small companies of less than 20 employees able to apply for emergency aid of up to 10,000 euros.
Germany has put in place an estimated 1-trillion euros package of measures, which includes money to tide small companies and individual entrepreneurs through the closures that have frozen business activity, and to pump capital into bigger companies where needed.
Under plans cleared by Chancellor Angela Merkel, self-employed people or private sector companies with up to five employees will be able to seek payments of up to 9,000 euros each over three months.
The figure will rise to up to 15,000 euros for companies with up to 10 employees.
On the whole, what the pandemic has proved is that free market principles and survival of the most competitive businesses are theories that work only under a business as usual scenario.
When encountered with the biggest health and economic crisis in a generation, state interventions and a helping hand from the government becomes critical.