Coronavirus Budget was no surface level cover-up job

Staff are being told to work from home. Offices are being closed to public access. Anyone with a persistent cough or a temperature of 37.8C or more is now being advised to self-isolate for seven days.

Daily life is grinding down to a snail’s pace, and at this point we can only take an educated guess as to how long this will be the case. It’s a stark situation, particularly for those businesses that rely on the physical presence of customers to sustain their trade.

There is no monetary value that can be attached to the lives of the minority for whom Covid-19 is a genuine and grave health threat, but when this outbreak finally peters out, its economic impact looks likely to overshadow the mortality rates.

That’s why the freshly-minted Chancellor Rishi Sunak spent much of last week’s lengthy Budget speech discussing various measures to help companies through what is expected to be a widespread cash flow shortage. The surprising generosity of some of what’s on offer is a clear indication of how serious Government expects the impact to be.

Among the Chancellor’s most remarkable moves was the decision to temporarily abolish business rates – one of the biggest tax burdens for SMEs – in England and Wales. This triggered a slew of phone calls and emails to Scottish Government rates officials from business leaders keen to see the same implemented here. The burning question is whether this, a new £2.2 billion grant scheme and the raft of other measures announced, will be enough to relieve the pressures coming to bear on business from coronavirus disruption.

The truthful answer is that no-one knows what a total economic shutdown – even a temporary one – looks like. And it’s the unknown that is generating the greatest fear.

The level of alarm was reflected in this past week’s plunging global stock markets as investors panicked over the prospect that the spread of the virus will destroy economic growth. The UK’s main FTSE 100 index crashed by 10% on Wednesday alone, its worst day of trading since 1987.

Even after a lacklustre recovery on Friday, the damage for the week amounted to nearly 1,000 points off the value of the index. Since mid-February, shares in the UK’s largest listed companies have fallen by more than one-quarter.

As unsettling as this turbulence is, the big corporations are better-placed than others to weather the storm. They have been laying contingency plans for Brexit and preparing accordingly, and can redirect those resources towards the current crisis.

On the other hand, most SMEs only have enough cash to cover a few weeks’ worth of down time before they’re sunk, and for many, the downturn is coming apace.

The hospitality industry is a clear illustration as cancellations have soared and advance bookings have fallen to near-zero at a time when the sector anticipates a rebound from the traditionally slower winter months. The multiplier effects from this are considerable as levels of trade for associated shops, venues and attractions dries up.

Time is critical for these and other firms that have only a limited amount of reserves.

The foremost concern is not whether there is enough help on offer, but rather the speed at which this support flows through to those on the frontline.

In conjunction with the Chancellor’s Budget announcements, the Bank of England (BoE) decided on Wednesday morning to slash interest rates in an emergency move to bolster the economy. Here again, officials went beyond market expectations, opting for a half-point cut to 0.25%.

“This is a big package – it is a big deal,” outgoing BoE governor Mark Carney said.

“It will have real economic effects, but also acting across the world and in a co-ordinated manner with the Government in a way that makes it clear that we are going to bridge a situation, as opposed to allowing it to be turned into something worse.”

This is meant to encourage banks to provide more leniency in the form of additional lending, higher overdrafts and repayment holidays to bring their business customers through what many now believe will be a deep – if hopefully brief – financial shock.

But as we have seen in the past, the banks don’t always follow where the BoE and Government lead.

Faced with a deep recession and the risk of deflation, the BoE decided in March 2009 to crank up the presses of quantitative easing (QE) with a programme of bond purchases designed to inject money into the economy.

The theory was that this would allow the banks in turn to resume lending and bring an end to the credit crunch.

But the way in which QE works meant most of this money wound up in the financial markets. That succeeded in boosting asset prices, but very little of the money created made its way into the “real” economy in the form of new lending.

Back to the current crisis, and banks such as NatWest – or Royal Bank of Scotland, as it’s known in this country – have said they are prepared to step in and help. NatWest, the UK’s biggest small business lender, has put up £5bn to support the SME sector, with a focus on providing working capital.

It was joined by Lloyds Banking Group, which has said it will provide £2bn worth of support.

Like the Chancellor’s new temporary Coronavirus Business Interruption Loan scheme, they key to the effectiveness of these initiatives is clarity, speed and ease of access, which is more difficult to achieve in these days when few SMEs have any kind of relationship manager at all.

As it remains majority owned by the Government, you would expect that NatWest/Royal Bank of Scotland could be leaned upon to get this relief into the market quickly.

Similarly, Sunak’s various initiatives need to be deployed at pace before the firms they are meant to assist no longer exist.