Kate Andrews Kate Andrews

Will the Chancellor’s stimulus tackle Covid-19 fears?

Last week’s £12 billion stimulus package to tackle the health and economic consequences of Covid-19 now seems like a drop in the ocean compared to Rishi Sunak’s announcement this evening: an astonishing £330 billion package of guarantees for business loans, up to £20 billion worth of tax cuts and grants for small and medium size businesses to stay afloat. As well: a year of full business rate relief for all companies in retail, hospitality and leisure sectors. And, he says, this is only the beginning.

The Chancellor needed to indicate to business (and markets) that this Government is serious about keeping the economy going. But this isn’t a crash: this is a pandemic, a worldwide health emergency whose (many) symptoms include government closure of certain parts of the economy. This can’t be remedied by a stimulus. Recessions are usually handled by pumping cash into the economy, encouraging people to go out and spend money. But as Cato economist Ryan Bourne noted earlier today, that would be exactly the wrong approach this time round: no amount of QE will put crowds back into theatres. Nor should that be the goal – yet. Such a stimulus would directly conflict with the UK’s public health advice, designed to stop the rapid spread of Covid-19, which includes working from home, avoiding restaurants and pubs and keeping socialising to a minimum.

The Chancellor’s measures are designed to alleviate fear – not to revive the market.

So Sunak had to come up with schemes that would limit the longer-term damage: keep otherwise-viable business afloat until economic activity can return to normal. Rather than targeting customers, the Chancellor targeted his stimulus straight at business owners. The whopping £330 billion package allows them to borrow from the Government with no interest – a generous offer on the surface, but with interest rates at rock bottom, the Government can afford to be generous (at least for a short while).

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