The chancellor’s summer statement was billed as a ‘kick-start’ for the UK economy, but in reality, it only keeps the patient on life support rather than get the patient back on her feet.
In the past few months, the global economy has been propped up by unprecedented levels of state aid, in Europe’s five largest economies, one-in-five workers are in a furlough scheme where the state pays their wages, according to The Economist.
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The UK Government has introduced a raft of measures since March to try and protect the economy from coronavirus and this latest round has focused significantly on jobs and housing, announcing new schemes designed to try and stop unemployment spiralling in the coming months. Tax cuts for homebuyers and publicans were also unveiled.
On the employment front, what we’ve seen is a £2bn scheme to create thousands of job placements for young people alongside a new £1,000 job retention bonus for employers who bring back furloughed staff.
Bankruptcies
The fear of mass bankruptcies and unemployment is the main reason the UK is subsidising businesses on a vast scale.
So until these subsidies are scaled back, governments can’t properly move onto the second phase of this crisis: assessing the damage, stimulating demand and targeting support where needed.
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By GlobalDataThe Finance & Leasing Association referred to the government’s package as short-term stimuli in search of a longer-term plan.
Stephen Haddrill, director-general of the FLA, says: “While we support the Government’s efforts to get the economy going again, the measures announced are primarily short-term stimuli, and need to be supported by more substantive plans for long term growth.”
The FLA’s recommendations for the UK recovery published this month (see page 5) look at the short, medium and long-term needs of an economy “where confidence must first be re-established, then consolidated with investment in new ways of doing business.”
Haddrill adds: “A sustained recovery will require lenders to play a major role. But to do so, they need more support, particularly those outside of the Bank of England schemes, because of the scale of assistance they are currently providing to their customers in difficulty – our most recent figures show that FLA members received over 1.8m requests for forbearance.
“When furlough comes to an end, millions will remain out of work. Supporting them and the economic recovery at the same time will be a bridge too far.”
On the SME support front, over £43bn has been borrowed by British businesses in government-backed loans to the end of June. Of the 104,569 applications made for the coronavirus business interruption loans scheme (CBILS), just 52,275 claims have been approved.
Changes brought in under the EU state aid rules are expected to see an improvement in CBILS business.
The road ahead
SME demand for financial support remains strong as finance companies continue to take stock of the coronavirus impact on their income, credit and capital risks with no end yet in sight.
What is challenging about this crisis for asset finance and leasing companies – like the rest of the business community – is the knowledge that the nature of doing business will be determined by medical developments.
What is clear is that the sector cannot move forward with any confidence until there is a vaccine on the horizon, a reliable treatment to manage symptoms or a working ‘track and trace’ system in place to manage outbreaks of the disease, all of which are sadly lacking and require a considerable role by government.
It is hard to see a clear end in sight and any kind of return to normality but it is clear that there does need to be longer term to cope with the fallout from the pandemic.
