End the futile lockdown
THE amazing aspect of the business support schemes on both sides of the Atlantic, flaws and all, is the speed with which they have been set up and the relative generosity.
It is frustrating, however, that when businesses come to leave the schemes after 12months they will face unjustifiable commercial interest rates of 7pc to 11pc, when official bank rate may still be just 0.1pc.
But even banks cannot run on free air. One of the consequences of free current account banking in the last decade was the sale of payment protection insurance, as banks sought to bridge the income gap. The mispricing of banking services eventually resulted in £50bn of PPI compensation.
Business support, which could cost £60bn, is money well spent if it does keep prudently managed enterprises in hibernation and bring them back again. But it would not surprise me in the least if staff kept in employment now, or put on furlough, were to find themselves victims of cost cutting when some sort of normality returns. Firms have held fire because sacking people in the middle of a pandemic is not a good look.
Furthermore, a manufacturing plant is not easily switched on again. If the steel furnaces are mothballed and the kilns where bricks are hardened are turned off, it takes weeks or months to fire them up again.
There have been glimpses in the last 48 hours of just how desperate the UK and global economic data is looking. The outlook for Britain’s services sector, the backbone of the economy, plunged from 53.2 to 35.7 in March according to the purchasing managers index. It is no comfort that the shutdown across the eurozone was even more calamitous, falling to 26.4 from 52.6. For guidance it is generally thought that anything below 50 is slump territory.
Was it really necessary to lock down the economy so harshly? Data collected by Google shows that at least one of the Group of Seven richest countries has chosen not to shut up shop.
Japan has been pragmatic in enforcing social distancing, and the country is managing to keep things relatively normal in spite of the older age profile of its population.
Visits to retail and leisure locations in Japan are down by 26pc. More remarkably, the number of people going into work is down by just 9pc. Contrast this with badlyhit Italy where visits to work places has plummeted by 63pc.
The health of citizens and saving lives clearly is paramount. But with most of Britain’s grey army and the vulnerable in selfisolation, it should be possible to bring a younger cohort, say the under 40s, back to work in bigger global companies, SMEs and on the High Street. Just such a call is due to be made at an international conference next week by Dr Sally Leivesley who is an Home Office trained adviser on protection of societies and economies from the aftermath of weapons of mass destruction, such as nuclear or biological attacks.
What should certainly happen is planning to bring business, finance and the economy out of hibernation as soon and as safely as possible. We need a figure in the mould of John Maynard Keynes – one of the inspirational intellectual leaders behind the IMF – for our times.
Gin tonic
LISTENERS to Melvyn Bragg’s In Our Time broadcast on Radio 4 this week will have been fascinated to learn that in the 18th century gin was often marketed as medicinal – an aphrodisiac and pitched as a cure for society’s terrible addiction to tea.
In keeping with tradition, Wirral-based artisan gin producer Tappers this week obtained a licence to switch production to hand sanitizer to support the nearby Arrowe Park Hospital. No longer mother’s ruin.