If it is still one of the countries least affected by the Covid-19 epidemic (382 sick and 6 dead so far), the United Kingdom announced on Wednesday March 11 a major economic support plan , coordinating the monetary and budgetary response. In the early morning, taking the markets by surprise, the Bank of England cut its interest rate by half a point, from 0.75% to 0.25%, and unveiled measures to help finance businesses. In the early afternoon, the new Chancellor of the Exchequer, Rishi Sunak, presented a much larger than expected package of budget aid.
The years of austerity are over, and there is no longer any question of reducing the deficit
By adding the promises related to Brexit and those for the Covid-19, the government of Boris Johnson will spend 30 billion pounds (about 34 billion euros) additional from April 2020 to March 2021 (the dates of the fiscal year ). The actual epidemic measures amount to £ 7 billion. The rest mainly relates to infrastructure spending. The years of austerity are over, and there is no longer any question of reducing the deficit.
The budget, the first of the post-Brexit era, was slated to be released on Wednesday. But Mr. Sunak had to rewrite it at the last minute to take into account the epidemic. If the country is currently relatively spared and companies are operating more or less normally, he recognizes that "Up to 20%" Britons could be affected and forced to quarantine.
Faced with the emergency, the Chancellor of the Exchequer acts on three levels. The first is to support health services. "Whether it costs millions or billions, the NHS (health service) will have what he needs. " Rishi Sunak remains relatively obscure about what this represents, however.
Easing of rules on social benefits
The second level is to provide financial assistance to the British who are forced to quarantine themselves. "No one will lose", promises Boris Johnson. The fear is that people with mild symptoms will refuse to stay at home if their income plummets, thereby contributing to the spread of the epidemic.
To encourage them to respect isolation, the tenant at 10 Downing Street had already announced last week that sickness benefit could be collected from the first day of quarantine, when it is normally only released. on the fourth day of illness. However, this minimum is very low (94 pounds per week).
In addition, most precarious jobs, such as couriers, who are officially “autoentrepreneurs”, are not covered by this allowance. In order to fill this hole, Mr. Sunak announces a reduction in the rules on social benefits, making it easier to receive certain aid. In addition, there is an emergency aid fund for individuals, the distribution of which will be borne by the local authorities. These individual measures represent a total of one billion pounds.
The third level of the government plan concerns businesses, which will be the main beneficiaries. Health benefits, normally covered by companies, will be paid by the government during the first fourteen days of sickness, which represents two billion pounds.
Very low level long term loans
Again, the goal is to prevent a boss from forcing his employees to come to work for financial reasons. In addition, the payment of certain taxes, in particular social security contributions, may be postponed. The state will also guarantee part of the cash loans that small businesses can apply for. Finally, a property tax on small businesses will be eliminated this year.
"People are worried, recognizes Mr. Sunak. But we are doing everything we can to help people stay healthy and financially strong. " He believes the impact of the epidemic will be "Significant, but temporary". "Together, we will overcome this crisis", he says.
On the side of the Bank of England, in addition to the rate cut, which is essentially symbolic, two important announcements should help companies which would encounter cash flow difficulties. On the one hand, the institution will provide very low-level long-term loans (0.25%) to banks that would grant loans, in particular to SMEs. On the other hand, it allows banks to reduce their capital by 1%. This additional liquidity should then make it easier for banks to lend.
The authorities hope that they have sent a strong and determined signal to appease the markets and avoid the worst of the economic repercussions of the crisis. However, the effectiveness of the measures will only be known once the epidemic has passed.
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