SU­NAK WRES­TLES WITH CRI­SIS

The Chan­cel­lor is tak­ing another huge gam­ble but in truth the sup­port on of­fer is far less gen­er­ous

The Daily Telegraph - Business - - Front Page - MATTHEW LYNN

There will still be sub­si­dies for wages. Soft loans for com­pa­nies will be con­tin­ued. The self­em­ployed will get some ex­tended help, and some of the tax breaks will re­main in place. On the sur­face, Rishi Su­nak is still shak­ing the magic money tree and of­fer­ing huge amounts of sup­port to pro­tect the econ­omy as lock­down re­stric­tions are reim­posed.

And yet, the Chan­cel­lor is tak­ing the sec­ond huge gam­ble of his short time in Num­ber 11. First time around he bet that he could put the econ­omy in deep freeze for three months. This time he is wa­ger­ing that a wave of cre­ative de­struc­tion will re­shape the econ­omy and get us through to the mo­ment when a vac­cine fi­nally ar­rives.

In truth, the sup­port is far less gen­er­ous than in the first round. Com­pa­nies that can’t op­er­ate nor­mally while the epi­demic is still out of con­trol will have to start mak­ing re­dun­dan­cies. Loans will start to be pulled, and busi­nesses that were in de­cent health in last year will find they can’t sur­vive un­til the end of this one. Un­em­ploy­ment will in­evitably start to climb. Hope­fully with enough de­mand, new busi­nesses and new jobs will emerge. If so then the Bri­tish econ­omy will emerge in bet­ter shape than many of its ri­vals, and with lower debt loads as well. But it is also a huge risk – and if it goes wrong the price will be a high one.

The up­surge in Covid-19 in­fec­tions this month de­manded a re­sponse from the Chan­cel­lor. True, hos­pi­tal­i­sa­tions and deaths re­main rel­a­tively sub­dued. For now, how­ever, the Govern­ment clearly feels it has no choice but to put re­stric­tions back in place. The pubs will shut at 10pm, and the num­bers will be re­stricted. Restau­rants will be forced to ac­cept far fewer book­ings. Of­fices that were ten­ta­tively think­ing about re­open­ing will have put that back on hold with fresh guid­ance to work from home where pos­si­ble, and the sand­wich shops and cof­fee bars in city cen­tres that were look­ing for­ward to the re­turn of the lunchtime trade will now re­alise they are on hold for a lot longer.

As for Christ­mas, with gath­er­ings re­stricted and par­ties un­likely, that now looks like a washout as well. Where once we hoped for a V-shaped re­cov­ery, we will now have to set­tle for an L – and we will have to hope it is not some form of an I that just plunges down­wards for­ever.

The Chan­cel­lor needed to step in. If busi­nesses de­served sup­port in April be­cause they couldn’t op­er­ate nor­mally, then log­i­cally they need sup­port in Septem­ber as well.

And yet, Su­nak is be­ing far less gen­er­ous than he was six months ago. The fur­lough scheme is still com­ing to an end next month. In its place, the Govern­ment will pay only a per­cent­age of salaries for staff who are back to work­ing part-time, and that sup­port will be tar­geted at spe­cific sec­tors and at smaller com­pa­nies.

That will save some jobs, but by no means all of them. A night­club owner won’t have any choice but to lay off work­ers. Pubs will make many peo­ple re­dun­dant. So will most of the em­ploy­ers in the com­muter econ­omy. There isn’t any point in pay­ing the wages of peo­ple who don’t have any work to do and not many busi­nesses would sur­vive if they did. The re­sult? A mil­lion or two mil­lion of the work­ers on fur­lough could find they don’t have a job. The hos­pi­tal­ity sec­tor will get a bit of ex­tra help with the re­duc­tion in VAT ex­tended, but the im­pact of that will be mar­ginal. Mean­while loans to com­pa­nies will be ex­tended un­der a new “pay as you grow” scheme. But be­yond that, there is not very much. Com­pa­nies will have to fig­ure out how they can sur­vive as best they can.

Com­pared to other coun­tries, it is a

brac­ing pack­age. Ger­many, France, Italy and Spain have all ex­tended their ver­sions of the fur­lough scheme well into next year. Ger­many and France in par­tic­u­lar are spend­ing big on in­dus­trial sup­port, pro­tect­ing both ex­ist­ing busi­nesses, and launch­ing big new in­vest­ments to cre­ate de­mand and jobs. The Euro­pean Union’s Coro­n­avirus Res­cue Fund will mo­bilise €750bn (£686bn) to spend on green en­ergy and other projects to sup­port the econ­omy.

In Bri­tain, by con­trast, the sup­port will be rel­a­tively mod­est. Sure, there will be plenty of peo­ple who crit­i­cise that. But it is not com­pletely crazy. A lot of the money thrown at sup­port­ing work­ers was go­ing to zom­bie work­ers at zom­bie com­pa­nies. Many re­tail­ers were in deep de­cline al­ready, and so were many of the malls and re­tail parks that de­pended on their rents. Covid-19 has merely ac­cel­er­ated a demise that was in­evitable any­way.

Like­wise, com­pa­nies were shift­ing to­wards flex­i­ble and home work­ing even if the epi­demic has ac­cel­er­ated that. There is no point in keep­ing com­pa­nies alive for­ever with pub­lic money when they don’t have much of a fu­ture any­way.

Even more of the money that in Europe will be thrown at new in­dus­trial strate­gies will end up be­ing wasted on ex­pen­sive white ele­phants (green en­ergy is great, but there are only so many so­lar pan­els and elec­tric car bat­ter­ies the world needs and we are head­ing for mas­sive over-ca­pac­ity). Our mod­est pack­age, by con­trast, will cost far less, and be far less am­bi­tious.

The Chan­cel­lor has un­leashed the “de­struc­tion” part. The ques­tion is whether the UK econ­omy can do the “cre­ative” part.

There are some en­cour­ag­ing signs that it can. Pro­fes­sional and ser­vices com­pa­nies have adapted al­ready to home work­ing, and it now seems that lawyers, de­sign­ers, con­sul­tants, bankers and en­gi­neers can all work ef­fec­tively in a home/of­fice hy­brid with lower costs and su­pe­rior pro­duc­tiv­ity. Some re­tail­ers have adapted to home de­liv­ery bril­liantly, and will be stronger for it once this cri­sis is over. In truth, if Rishi Su­nak has called this one right, the UK will emerge stronger than it was be­fore, if not in ab­so­lute terms then com­pared to our main ri­vals. It will be leaner, far more dig­i­tal, more flex­i­ble, and with lots and lots of new, grow­ing busi­nesses. It will have far less debt, and so won’t need mas­sive tax rises down the line to pay back all the money spent on fur­loughs and in­vest­ment.

The trou­ble is, if it is wrong the UK will be left with mass un­em­ploy­ment, a gen­er­a­tion of work­ers with few skills, and a shrunken and ema­ci­ated eco­nomic base. It is a huge gam­ble – and one we will all have to hope the Chan­cel­lor has got right.

‘Com­pared to oth­ers, it is a brac­ing pack­age. Ger­many, France, Italy and Spain have all ex­tended their fur­lough’

‘If it is wrong the UK will be left with a gen­er­a­tion of work­ers with few skills, and a shrunken, ema­ci­ated eco­nomic base’

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