UK govt coronavirus £350bn aid package 'not enough' - analysts
Plan 'may not save jobs', lacks clarity on loan repayment details
Britain's £350bn coronavirus aid package to the retail, leisure and hospitality sectors would not save jobs and did not go far enough, analysts warned on Wednesday.
Investors seemed unimpressed as early positive sentiment on the UK stock market turned into a 5% fall by lunchtime.
Despite the eye-watering sums involved, many analysts were concerned at the lack of detail on the terms of Finance Minister Rishi Sunak's £330bn loan to businesses and £20bn in grants and other measures such as a three-month mortgage holiday.
There were also concerns about the lack of support for people who rent and vague promises around income support, particularly those in the gig economy, and the UK's historically poor levels of sick pay.
The Institute for Fiscal Studies, a respected think tank, said that while the aid package was substantial, it was "probably not well targeted at saving jobs in those industries".
"It will remain as expensive to pay people and if demand is down then jobs are likely to go," said IFS director Paul Johnson.
He added the government could consider targeted cuts to employer national insurance contributions, a delay in increases to the national living wage, and increased support for individuals through universal credit.
AJ Bell chief investment officer Kevin Doran said Sunak's plan lacked any real help to fill in the "production chasm that is coming our way over the next few months".
"If this is ‘whatever it takes’, I’m afraid ‘it just isn’t enough," he said. "For the regular man on the street, the headline grabber will be the three-month payment holiday on mortgages."
The IFS' Johnson also noted that firms outside the leisure and hospitality sector had not been targeted for support. "Many of them may face similar problems of reduced demand, or problems resulting from fewer employees able to work," he said.
QUESTIONS OVER £330BN LOAN OFFER
Doran said there were still questions on whether banks would continue to accrue interest on the outstanding balances and then leave companies with an even bigger debt buredn .
"If it’s a simple payment holiday, then that’s pretty much what any bank would offer all customers in payment difficulty - nothing new here," he said.
However, if the offer on the table was debt relief it would represent "quite a hand-out to the public given that there’s £1.3trln of mortgage debt in the market earning the banks an estimated £6.5bn of interest every quarter".
He added that writing off the £28bn in quarterly interest banks get on their loan books "would shave £56bn or so from the bank’s profit and loss and tip the entire sector into the red for the year". However this would be only 3% of all loans outstanding and slightly over 12% of the bank’s risk capital.
"As a percentage of GDP, it’s a giveaway of around 3%, which, whilst we’re at it, we should top up with government support for the five million people who pay rent instead of mortgages in the UK," Doran said.
Johnson sad that while support for those with mortgages would be welcome, many renters would nevertheless suffer "significant falls in income".
"Unlike many other European countries we do not have a benefit system which provides significant earnings replacement for those who lose their jobs and renters with little or no savings look particularly exposed as a result. There is more to do if that is what the government wants to achieve."
The coronavirus pandemic was also a timely reminder of the financial crisis of 2008 when the banks "peered over the precipice and were dragged back from the abyss by the public".
"With the public now staring down the barrel of an unknown threat, seems only right that the banks get involved in bringing hope where there is despair," Doran said.