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Sun 12 July 2020
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Stephen Colegrave investigates whether the new UK Government support package is going to help the working population or just prop up big business.

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At last, the Government seems to be taking the Coronavirus outbreak seriously and is prepared to spend more than £330 billion on alleviating its financial impact. There has been jubilation from much of the press – including the Daily Mail, which claims the move is A £350 Billion Kiss of Life.

But will this money be spent effectively and will it reach the people that really need it?  

In this unprecedented crisis, it is crucial it has the maximum impact for the most people to ensure that businesses, and more importantly their employees as well as the self-employed and small business owners, can pay their bills and survive.  

This has led other countries, such as Denmark, to focus more on employees and fund their economic survival directly rather than just through loans to businesses. Even US President Donald Trump is talking about sending cheques for thousands of dollars directly to every citizen to ensure that help reaches the people who need it.

But, the UK Government is focusing a little more than £1 billion on direct funding for vulnerable groups and a three month mortgage holiday.


Loans Without Conditions

Even more worrying is the fact that the new Government loans have no conditions attached to them, in terms of whether businesses can take the money and still make employees redundant, leading to pleas today from the Chancellor of the Exchequer for businesses not to make employees redundant if possible.

The Bank Of England has admitted that there is nothing to stop directors of companies in receipt of these loans paying money out in bonuses for senior management. This begs the question: how much of the £330 billion will actually get through to support the people working for the businesses that take the loans?

Professor Richard Murphy, of Tax Research, believes that the loans will end up shoring up companies that are already insolvent and paying for lost sales and not helping the businesses to be in good shape when the crisis is over. Since companies can take this money and use it to replace lost sales, pay their debts and bolster cash flow before any of it goes towards employees, it only indirectly ensures that employees are looked after. The best way to do this is to spend money suspending rent, tax or provide proper business loans and leasing holidays.

But, Prof Murphy suspects that there is a reason the Government prefers to provide money this way:

“I think (the Chancellor of the Exchequer) did so to keep this cost off the Government’s deficit. He tried to put it on the Government’s balance sheet instead… But that was a gross error of judgement. Only the Government can bear the cost of these losses”.

He believes it is essential that employees are given financial support directly:

“Many businesses cannot pay their staff right now, but the cost to society of making all these people redundant is immeasurable. Which is precisely why I suggest that the Government should cover the entire cost of a large proportion of the net pay due to these staff, the tax due having already been covered by a tax payment holiday.”

He also recognises that self-employed people and those on zero-hour contracts would have to be covered separately.


Millions Will Not Benefit

Perhaps if the Government used its business support more judiciously it would have some of the £330 billion left to give to the large groups of the population who are not employed in a traditional way.

There are six million self-employed people in the UK and 96% of them are without income protection and 93% without critical or health cover. Many of these people are either contractors for companies that will no longer need their services or are in sectors that are already being hit hard by the effects of the Coronavirus.

There are nearly five million people working in the short-term ‘gig economy’ – some of whom will be self-employed, but many others who are on zero-hour contracts with little security or assurance that any money loaned to their employers will come to them. They represent more than 15% of the working population and, combined with the rest of the self-employed, probably make up more than 25% of the entire working population.

This means that potentially over a quarter of all working people will see limited benefit from the £330 billion and risk poverty.

£330 billion is an eye-catching figure and might have stabilised the stock market in the short-term, but it is arguably flawed because the Government could do better by directing more support directly to people and not businesses. Unfortunately, millions of people are likely to suffer and billions of pounds wasted that could have been better spent in ensuring that everybody had a safety net at this time of crisis.


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