Sunak under pressure to spend big for business

Chancellor Rishi Sunak is under pressure to shred the Conservatives' fiscal straightjacket and spend as if the UK is at war to prevent the economy imploding under the weight of the coronavirus crisis.

Less than a week after his first budget, Sunak will announce fresh measures on Tuesday afternoon aimed at preventing a widespread business collapse. The government has been bombarded with criticism and warnings from business groups about its call for people to avoid pubs, restaurants and other public venues.

The pub industry said it could be wiped out within days without help as cinemas closed across the country. Retailers also warned plunging footfall could send companies to the wall. Airlines and airports have said they are on the verge of going bust as passenger numbers and flights plunge.

After telling people to carry on more or less as normal last week Prime Minister Boris Johnson changed course abruptly on Monday evening by announcing a virtual lockdown on much economic activity. But the hospitality and leisure industries, which rely on consumers going out to spend money, have warned they face wipeout without state support.

The boss of the Carluccios Italian restaurant chain spoke for many in his industry when he told the BBC the government needed to step in to ward off mass closures.

“We understand the role we have to play in public health, so I won’t question the government’s advice on that," Mark Jones said. "But to do that to an industry without any fiscal support whatsoever condemns us to death, effectively.”

Measures requested by business groups include suspension of business rates and taxes as well as help paying workers and other direct contributions from the state.

Leaders of the government's budget watchdog gave Sunak the green light to turn on the spending taps at a session with MPs. Robert Chote, head of the Office for Budget Responsibility, said Sunak should "spray water" at businesses and worry about the public finances later.

Chote said the Treasury should go on a wartime footing and be prepared to tolerate budget deficits of 20% of GDP as the UK did during the second world war. Net borrowing was just 1.9% of GDP in 2019.

His colleague Charlie Bean said it was better to spend too much than too little because a mass business collapse would damage the tax base for the long term.

The Confederation of British Industry also told the government to do whatever it takes to protect businesses from a temporary shock. The CBI's director general Carolyn Fairbairn told the BBC: "We are looking for action at scale, coordinated and very, very fast on a no-regrets basis. We do not want to look back and say we acted too late."

Meeting these demands will require Sunak to throw out the economic manual the Conservative party has stuck to for the past 10 years of cuts to public spending in the name of "fiscal discipline". Some Tory MPs expressed concern at the spending plans announced in last week's budget, which featured £7bn of support for businesses and workers.

The chancellor will announce his measures at a news conference a day after Emmanuel Macron raised the bar on government intervention by announcing up to €300bn of guarantees for loans to business. The French president also pledged no company would go bust because of the coronavirus.

Sunak, who took over at the Treasury last month, is expected to concentrate his attention on the aviation industry and the leisure and hospitality sectors, which are at most visible risk from restrictions imposed in response to the virus. But thousands of small and medium sized businesses are in dire peril as well as large brands.

Richard Murphy, a tax consultant and economic commentator, said: "I have a horrible fear, given the track record of this government, that the bias to be shown will be towards big business. Support must be right across the business size spectrum. The preservation of the intellectual and human, as well as financial, capital of many smaller businesses might be just as important for our long-term survival of this crisis as is support for larger enterprises."