Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.
It looks as though we have just about passed the worst in terms of new cases and daily deaths, which will lead, inevitably, to assessing and assisting the country’s economic outlook. My expectation is that we will start to ease the lockdown gently in early May.
The ability to get back to the favourable economic conditions of six months ago is not yet possible, because a significant number of people will have lost their jobs/income and simply cannot afford to turn on the spending tap.
Notwithstanding, the Government should urge people to increase their consumption to help get the economy going.
Time will tell, but it looks as if we are fortunate in having a particularly able and bold Chancellor of the Exchequer who has devised and put in place key new financial institutions to help sustain economic recovery.
The Coronavirus Business Interruption Loan Scheme (CBILS) is there as the corporate lender of last resort. So far, the banks have frustrated the use of CBILS funds, particularly by smaller companies, by requiring personal guarantees and wholly profitable track records, and also by being unwilling to lend where companies have obtained Enterprise Investment Scheme funding. I expect the Government to have some success in getting the banks to be more cooperative here, but that CBILS will mostly be used by more established businesses.
The CoronaVirus Job Retention Scheme has been dramatically more successful in making available furlough finance equal to 80 per cent of earnings up to £2500 per month. More directly, the Chancellor has provided a £9 billion rescue package for the self-employed, again equal to 80 per cent of earnings up to £2500 per month.
The Chancellor’s latest initiative is the establishment of a Future Fund, together with an expansion of the role of Innovate UK, to provide a total £1 billion stimulus package for SMEs/Start Ups. This is a key territory, where the UK has been markedly successful recently. £10.1 billion was invested last year into UK tech unicorns alone – with the UK being the third largest tech investor after China and America.
It is intended that the Future Fund will operate on an investment matching basis, whereby the Government will commit initially up to £250 million in total funding for investments of between £125,000 and £5 million, alongside Venture Investors/Funds which agree to match the Government’s funding with their own private capital.
It is not entirely clear who will be ultimately responsible for the investment decisions. The Government’s portion of the funding will be provided in exchange for the issue in convertible loan notes. It looks as if and it needs to be the case that the investment decisions will be made by the managers of the Future Fund ,and not by government. There are several practical points yet to be resolved whereby the Government intends the window for applications to run until the end of September.
The very positive Keynesian stance of the Chancellor gives me greater optimism that, once recovery starts in the summer, it may proceed and accelerate better than many currently anticipate. In releasing functions and activities from lockdown, clearly the initial wave will focus on areas where there is no density of individuals involved in the relevant activities.
The Government might also learn its lesson from and copy Germany in this area. Furthermore, if it looks as if inoculation could be developing speedily available on a major scale by the end of the year. This will surely be positive for economic confidence. But, like Asia, we would be wise to be organised to contain aggressively any new virus outbreaks which might occur.
The initial freeing-up is likely to apply to no more than 25 per cent of lockdown activities, and this will need the prerequisite of being able to have nationwide testing and tracking of new cases which may arise. At best, it is likely to take 12 months to get back to conditions to be seen as reasonably normally, which in many areas and particularly retail will operate very differently compared to two years ago. Here, the Government needs to use capitalism to hasten the adaption to changes.
The first phase of lockdown easing is likely to concentrate on areas not subject to mass participation, e.g. small shops; hairdressers; garden centres; walking in parks; private car usage and family visits. There will be pressure to open schools sooner rather than later, where relatively few cases will give justification here. The sort of areas likely to be the last to be freed up are large department stores, cinema’s, concerts and church services including weddings.
The pundits have put the UK’s lost output at 15 per cent to 30 per cent of GDP: personally, I anticipate it to be less and closer to 10 per cent to 15 per cent.
The first economic objective will be to restore consumption, wherever possible and to make sure there is the necessary funding to finance large and small transactions. Ongoing economic policy will need us to live with the debt that has been created, and to rely on future economic growth to effect the relative reduction needed in the country’s real level of debt.