Britain will on Tuesday unveil a rescue package for businesses threatened with collapse by the coronavirus outbreak as budget forecasters said the scale of the borrowing needed might resemble the immense debt splurge during World War II.
British Prime Minister Boris Johnson, who told people to avoid pubs, clubs, restaurants, cinemas and theaters on Monday, was expected to address the nation alongside finance minister Rishi Sunak later on Tuesday.
Sunak last week announced help for business, including some tax suspensions for smaller firms, alongside emergency moves by the Bank of England.
But the virtual shutdown of swathes of the economy since then has forced the government – like many other countries around the world – to come up with a new plan.
Britain’s independent budget office drew comparisons with World War II.
“Now is not a time to be squeamish about public sector debt,” Robert Chote, head of the Office for Budget Responsibility, told lawmakers.
“In some ways it’s like a wartime situation,” Chote said. “We ran during the Second World War budget deficits in excess of 20% of GDP five years on the trot and that was the right thing to do.”
OBR member Charlie Bean said there was a “very good argument” for the government to act as insurer against coronavirus losses and any attempt to forecast what would happen to the economy in the next year or two was “pie in the sky.”
But Bean also said the economic damage from coronavirus should prove to be less than the hit caused by the global financial crisis a decade ago.
In his first budget statement to parliament last week, Sunak promised 30 billion pounds ($37 billion) of measures to support public healthcare, affected businesses and provide broader economic stimulus in the face of the coronavirus.
On Monday, French President Emmanuel Macron said his government would guarantee 300 billion euros worth of loans, and promised that no French company would be allowed to collapse.
Adam Marshall, director general of the British Chambers of Commerce, called for more government action.
“Government has got to do more on the upfront costs facing businesses,” he told the BBC.
Suspension of tax bills would be the most useful immediate step, he said.
Businesses hit
British companies have already been hit by the crisis. The world’s biggest catering firm, Compass Group, warned that its half-yearly operating profit would be lower than expected.
Johnson is under pressure to clarify whether he plans to formally order pubs and theaters to close after telling the public to avoid these businesses.
Business owners said the announcement would destroy demand, but unless the government mandated their closure they would be unable to claim on insurance policies.
“You can’t tell the nation to avoid ‘pubs and clubs’ and not officially ‘close us’ so that we can claim our insurance. Please help,” said Fraser Carruthers, who co-owns nightclubs, including Mahiki, which was popular with younger members of the royal family.
Shares in pub group Marstons were down 28% and Mitchells & Butlers down 16%.
New Bank of England Governor Andrew Bailey promised more “prompt action” on Monday, less than a week after an emergency rate cut by the BoE as the scale of the coronavirus hit to the economy became clearer.
Investors are watching for another rate cut, possibly before the BoE’s next scheduled announcement on March 26, even though its room for maneuver has been reduced by last week’s action when its benchmark lending rate was cut to 0.25%.
The central bank is also expected to expand its 435 billion-pound government bond buying program. (Additional reporting by Kylie MacLellan; Editing by William Schomberg; Jane Merriman and Giles Elgood)
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