The emergency economic measures announced yesterday by the chancellor were, as he said himself, unprecedented. And that must be a massive understatement. It's hard to be critical since it appears extremely generous and comprehensive. But at some point someone is going to have to pick up the tab and it will be a big one. The numbers will be eye watering. I do not complain about it, because it is absolutely necessary and the government really had no choice.
Billed as the Coronavirus Job Retention scheme it covers employees who would otherwise be in danger of being laid off. I see this morning there are calls for even more support to cover the five million self employed and free lance workers. But it is a massive gamble.
Over the next few months the government's income will plunge in a way we have never seen before. At the same time, expenditure is going to rocket. The difference between the two, known as the Public Sector Borrowing Requirement (PSBR) is running at about £47 billion a year at the moment. Having been gradually reduced from £158 billion in 2009-10.
Sunak talked about the Debt Management Office, the department responsible for raising money from the markets, being able to manage to sell the debt and he seems confident about it. However, the British economy was teetering on the edge of a recession in January and lenders may demand higher interest or be reluctant to lend at all. Coronavirus has not only made a recession absolutely certain, but we will look back on the financial crisis of 2008-9 as a bargain.
During the financial crisis borrowing hit 10.2% of GDP (£158 bullion) without any job retention scheme at all. While the economy slowed a little then it didn't stop altogether as it threatens to do now.
Sunak's measures are in place for three months initially until the tide is turned as Johnson hopes. Nobody believes the pandemic will be over by then, with SAGE (Strategic Advisory Group of Experts) on immunisation and vaccines, a WHO body, talking about it lasting eighteen months. What happens in June? Does the government do the same again?
Ben Habib, a former Brexit Party MEP, writes in The Telegraph (no£) that "as awful as the virus is, it strengthens the UK’s hand in negotiations".
He says:
"First and foremost, it will soon be revealed that the Eurozone is in a deep recession and that the steps taken by those countries to combat the virus is going to leave many of them bankrupt. They entered this crisis over leveraged with many governments carrying debt burdens north of 100 per cent of GDP and high levels of unemployment, particularly in the youth. These debt levels and unemployment rates will now rise dramatically, including that of Germany’s."
British exceptionalism is strong in Mr Habib. He genuinely thinks some European countries will be bankrupted but that Britain will somehow escape. It's as if we been vaccinated against bankruptcy.
I am not convinced this is true myself. And far from strengthening our hand, as the smaller and weaker partner we will be forced to accept the terms dictated by Brussels. To leave in December, with or without a deal, is now unthinkable. It would be deliberately inflicting a second - but entirely voluntary - disaster on a nation struggling to pick itself up after a catastrophe. All governments will be doing their utmost to increase trade while we would be doing the reverse - to a greater or lesser extent. Even the best possible scenario means less trade.
He goes on:
"And, even if the above assessment is wrong [that we will get all we want], and the EU continues to make egregious demands of us, now, afflicted as we all are by the virus, would be a better time to exit the transition period without a deal. Global trade has fallen off a cliff and any disruption caused by a no deal exit is bound to be less than it would have been in more normal times. No longer should anyone fear queues at Calais and Dover (not that this was ever a genuine problem).
"Moreover, if we seek an extension to the transition period, we would be signalling to the EU that we are not prepared to leave without a deal. We would belie the government’s representations to the contrary and do ourselves irreparable damage in the negotiations."
On this last point, I suspect this is the reason Johnson fears making the request. We will look as if we aren't prepared to leave without a deal. The EU may help by saying it was a joint decision but I wouldn't bank on that.
Jennifer Rankin reported yesterday that EU fishing states have toughened up the wording of the legal text published on Wednesday, demanding the "upholding … existing reciprocal conditions on access to waters and resources", whereas the previous version set the bar at "defining clear and stable rules". They don't look ready to offer an olive branch yet.
By June when the Job Retention Scheme runs out Johnson will need to take a decision on whether or not to extend the transition period - and he will extend.
During the financial crisis borrowing hit 10.2% of GDP (£158 bullion) without any job retention scheme at all. While the economy slowed a little then it didn't stop altogether as it threatens to do now.
Sunak's measures are in place for three months initially until the tide is turned as Johnson hopes. Nobody believes the pandemic will be over by then, with SAGE (Strategic Advisory Group of Experts) on immunisation and vaccines, a WHO body, talking about it lasting eighteen months. What happens in June? Does the government do the same again?
Ben Habib, a former Brexit Party MEP, writes in The Telegraph (no£) that "as awful as the virus is, it strengthens the UK’s hand in negotiations".
He says:
"First and foremost, it will soon be revealed that the Eurozone is in a deep recession and that the steps taken by those countries to combat the virus is going to leave many of them bankrupt. They entered this crisis over leveraged with many governments carrying debt burdens north of 100 per cent of GDP and high levels of unemployment, particularly in the youth. These debt levels and unemployment rates will now rise dramatically, including that of Germany’s."
British exceptionalism is strong in Mr Habib. He genuinely thinks some European countries will be bankrupted but that Britain will somehow escape. It's as if we been vaccinated against bankruptcy.
I am not convinced this is true myself. And far from strengthening our hand, as the smaller and weaker partner we will be forced to accept the terms dictated by Brussels. To leave in December, with or without a deal, is now unthinkable. It would be deliberately inflicting a second - but entirely voluntary - disaster on a nation struggling to pick itself up after a catastrophe. All governments will be doing their utmost to increase trade while we would be doing the reverse - to a greater or lesser extent. Even the best possible scenario means less trade.
He goes on:
"And, even if the above assessment is wrong [that we will get all we want], and the EU continues to make egregious demands of us, now, afflicted as we all are by the virus, would be a better time to exit the transition period without a deal. Global trade has fallen off a cliff and any disruption caused by a no deal exit is bound to be less than it would have been in more normal times. No longer should anyone fear queues at Calais and Dover (not that this was ever a genuine problem).
"Moreover, if we seek an extension to the transition period, we would be signalling to the EU that we are not prepared to leave without a deal. We would belie the government’s representations to the contrary and do ourselves irreparable damage in the negotiations."
Jennifer Rankin reported yesterday that EU fishing states have toughened up the wording of the legal text published on Wednesday, demanding the "upholding … existing reciprocal conditions on access to waters and resources", whereas the previous version set the bar at "defining clear and stable rules". They don't look ready to offer an olive branch yet.
By June when the Job Retention Scheme runs out Johnson will need to take a decision on whether or not to extend the transition period - and he will extend.
Meanwhile coronavirus cases continue to double every 3-4 days. When you start to increase numbers exponentially the figures quickly become frightening. One London hospital declared a critical incident yesterday but it will not be the last. Confirmed cases were touching 4,000 by last night. In another week that will be around 16,000. In twelve weeks.....
The message for everybody surely is don't become infected. Do everything you can to reduce the risk of infection. Guidance from the NHS can be found HERE.
