Chancellor Rishi Sunak has announced more financial measures to address the impact of coronavirus on the economy.
IFS Director Paul Johnson said:
"The Chancellor has just added substantially to the package of measures announced just last week to support individuals and, in particular, businesses affected by the economic fall out from the Coronavirus. He will need to come back with more.
The biggest injection will come through guaranteed loans to businesses. These will be welcome. It is worth noting though that as loans that need to be paid back, the long term value and viability of businesses taking up the loans will be reduced. This could still leave some which would otherwise have been viable for the long run no longer viable without refinancing. The long run costs of these loans for the public finances is highly uncertain.
The support through business rates holidays and payments is targeted directly at the retail, leisure and hospitality sectors many of which will be suffering a lot, especially in light of yesterday’s new announcements discouraging people from patronising such businesses. This is a substantial level of support. However, it is probably not well targeted at saving jobs in those industries. It will remain as expensive to pay people and if demand is down then jobs are likely to go. Supporting employment might require a targeted package which included targeted cuts to employer national insurance contributions, a delay in increases to the National Living Wage, and increased support for individuals through Universal Credit. Government might also want to facilitate people being able to move into jobs where there is now much greater demand – delivery drivers and warehouse workers for example – in a way which allows them to return easily to their original jobs once the crisis is over.
Firms outside the leisure and hospitality sector have not been targeted with this additional direct support. Many of them may face similar problems of reduced demand, or problems resulting from fewer employees able to work.
As the Chancellor said, more measures are likely to be necessary.
Support for those with mortgages will also be welcome. No doubt the reason for providing support to them rather than renters is two-fold. First, there is no equivalent to the banking sector providing rents which can be subsidised directly. Second, we do have a benefits system which covers at least part of the rents of those with little or no other income. Many renters will nevertheless suffer significant falls in income. Unlike many other European countries we do not have a benefit system which provides significant earnings replacement for those who lose their jobs and renters with little or no savings look particularly exposed as a result. There is more to do if that is what the government wants to achieve."