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Financial crisis economic measures due to COVID-19

By Dr Elaine Garcia, Senior Programme Leader at London School of Business and Finance (LSBF)

As the coronavirus infection rate continues to rise in the UK, we have action from the UK Government which the Chancellor repeatedly said during a recent press conference, is “unprecedented”.

The recently revealed package of economic support will be extremely welcomed by both businesses and workers who were at serious risk of financial difficulties and even redundancies and bankruptcy in some cases. These effects were as a result of the social distancing and household isolation requested by the government to slow the progress of COVID-19. It has been a truly extraordinary package of benefits and spending from a government, which typically, would not be expected to seek to increase state spending and support so far; we are, however, in extraordinary times.

The measures announced by the Chancellor are a further demonstration of the economic crisis that we are currently facing and the attempts of the UK government to ensure that the economy doesn’t collapse under the weight of the measures imposed.

While the measures announced were widely welcomed, one area in which the Government has been criticised is the support offered for those who are self-employed. According to the ONS, there are approximately 5 million people who are self-employed in the UK as of September 2019. The package announced does not provide any additional coverage for these people. Therefore, while employees will be given up to 80% of their wage, those who are self-employed will only be supported through Universal Credit which, for many, will be substantially under the allowance made for those who do not work for themselves.

It seems that the aim of the support package announced was to encourage businesses not to make staff redundant. Although it is also likely the package was seeking to persuade many businesses that were still operating to make the tough decision to close their doors without the need for direct Government enforcement. Enforcement was however something the Prime Minister was forced to formalise further on Monday by providing clearer guidelines for shops to shut and for people not to leave their homes unless absolutely necessary.

For many businesses, the difficult decision to close has now been made. Big national retailers who had already announced that they will be temporarily closing have now been joined by many others who might have been trying to carry on for as long as they could. Increasingly we are also hearing that a wide number of smaller businesses across the country are also reluctantly shutting down, hoping that customers will return when they are able to open their doors again.

Many small business owners and entrepreneurs who have announced their closure have spoken about the time they have spent building up their business and their concern about whether they will have to start from scratch when they are able to reopen. This might, in part, explain why some business also seemed to be underestimating the advice given by the Government. For example, those businesses which were still advertising rurally located B&Bs and holiday parks as a place for those from cities where to self-isolate with their families, much to the annoyance of those living within these regions.

Furthermore, it appears that many other people chose not to follow Government advice with directions to stay at home and socially isolate themselves from others over the weekend following this announcement. According to reports, beaches, parks and outdoor areas around the UK were busy and social distancing was not being observed. It is unsurprising that we therefore saw a further tightening of restrictions of the movement and freedom of the British public, the likes of which have not been seen before during peacetime and which may not, as yet, reached its pinnacle.

With further measures now implemented, the key question for the majority of businesses is, therefore, how long will these measures last and what will happen once this crisis ends? The government is clearly hoping and anticipating that the economy will bounce back and that the current economic position is only temporary. Certainly, this will be the best-case scenario for everyone. It is hard to imagine, however, that there will not be some long-term impact on the economy as a result of this crisis and the measures that have been put in place.

While it is clear that this crisis will end, and this is the message the Government is trying to disseminate, the next question we will need to tackle is how will this extraordinary spending be recouped?

Having faced a number of years of austerity, will we be faced with another period of government cuts and tax increases? In these unparalleled times, it’s impossible to know what the future will hold, but at least for now, employees and businesses can see the government is committed to supporting them during this “unprecedented” time, and there appears to be genuine relief and gratitude for this.