The government has announced the biggest increase in public borrowing for 30 years.
In attempt to counter the economic impact of coronavirus, the UK is turning on the fiscal taps, announcing a £30 billion stimulus, in the biggest increase in public borrowing for 30 years.
In his first Budget since becoming chancellor, Rishi Sunak unleashed a raft of measures aimed to soften expected demand and supply side shocks to the UK economy.
The chancellor said that the virus would likely result in a significant but temporary disruption to the UK economy, hitting both supply and demand.
Anticipating coronavirus seeing around 20% of the workforce, the chancellor announced changes to rules on statutory sick pay, allowing workers to claim sick pay easier and earlier. He also announced that sicknotes could now be acquired through calling 111.
At the same time, the chancellor announced new rules to make it easier and quicker for those either self-employed or working in the gig economy to claim government benefits.
Added to this, a £500 million local hardship fund will become available to local authorities to directly help those in need due to an economic fallout from the virus.
However, the chancellor recognised this increase in sick pay availability for workers would come at a cost to businesses already struggling with the fallout of the virus. As a result, the government will refund the cost of sick pay for up to 14 days for all companies with less than 250 employees. The chancellor estimates this as being worth around £2 billion for two million businesses.
Several other measures were unveiled in a bid to provide support to businesses. Faced with a fall in demand and global supply chain disruptions, many businesses will likely face cashflow problems, potentially unable to make their payroll obligations, purchase inventories or service existing debt.
To assist such businesses, Sunak announced a scheme for banks to offer small businesses loans of up to £2 million, 80% of which will be guaranteed by the government. The chancellor expects this to unlock £1 billion in working capital loans.
Other measures include temporarily abolishing the business rate for the retail, leisure and hospitality sectors, as well as allowing some companies to defer tax payments.
The new raft of measures to support businesses come following the announcement of the Bank of England’s own measures, such as the creation of the Term Funding for Small and Medium Enterprises (TFSME) and reduction of counter cyclical capital buffers for banks to 0%.
The Bank also announced a 50 percentage point emergency cut to interest rates, which now sit at the historic low of 0.25%. As many commentators on the Bank’s cut noted, such low borrowing costs provide support for the government increase its fiscal response – the size of which we now know. Both the chancellor and Bank have noted that they have attempted to act in tandem in a bid to counter the expected economic shock of the virus.
The chancellor also noted that the budget’s response to coronavirus was one of the most comprehensive economic responses in the world so far.
Italy recently announced a suspension of debt repayments for household mortgages and loans for certain businesses. With the country in lockdown, the fear is that many households and businesses could default on their debts, further imperilling Italy’s struggling banks.
Other major policy response in recent days have included a proposed for workers in the US, while Australia has announced a host of measures to support struggling businesses.
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