The number of suitors to avail of the £350 billion business loans guarantee scheme announced by the government has been rising steadily. Even before the government announces the successful candidates who will be the beneficiaries, speculation is rife regarding which companies and which industries will be the most preferred by the Bank of England. The scheme which has now been named as "Covid Corporate Financing Facility" (CCFF) will see the central bank dole out a package size that accounts for nearly fifteen per cent of the British GDP and is one of the largest the country has ever rolled out during peacetime after the second world war.
The current rescue package will be in the form of guarantees which will help large and small businesses to take credit from banks to pay for their expenses and employee salaries while the current period of demand slowdown continues. While the previous announcement by Chancellor of the Exchequer, Rishi Sunak, involved large scale cash injection into small and medium businesses, this rescue package will be more indirect in its implementation. It entails that the government will be working in conjunction with the Bank of England where the central bank will purchase short term loans issued by large corporates, should they fail to repay them to their lenders, for up to a year totalling £350 billion which the government believes will last long enough till the threat of the outbreak abates.
Regarding the companies which would be getting the benefit of the scheme, discussions indicate that companies providing essential services like utilities and housing will be preferred first and the rest will be lined up according to the importance of the services they provide. The Chancellor has also commented on this issue that it will not be possible for him to extend the olive branch to all businesses. While responding to the bailout requests of several large industry groups, he stated that some businesses are bound to fail and that he has asked the Bank of England to extend the facility only to those businesses who are found to be sustainable. The Chancellor also appealed to the people to support and show kindness to each other and help out those in need so that the country can come out of this crisis together.
Regarding the implementation of these measures, the government will be backdating the cash injection schemes to the beginning of March, and they will be up and running within weeks. The government has decided to forgo VAT payments for the next quarter which would be equivalent to a cash injection of £30 billion and will help several companies in the country to stay afloat, which are otherwise on the brink of collapse. Addressing the employers directly regarding these measures, Chancellor Sunak stated that the British government is standing behind them in this hour of need and expects reciprocation from the businesses against this gesture, to wholeheartedly support their employees and protect their interests.
The "Covid Corporate Financing Facility" (CCFF) being extended by the government is in addition to the above measures being extended by the government which are aimed at benefiting all. Incidentally, all these measures while being directed towards protecting the business from going bust and protecting interests of the average British citizen will cost the government a fortune. Several economists warn that despite these measures the unemployment rate in the country will be more than double of what it is now, and the impending recession is going to be far worse than the 2008 financial crisis. The hardest hit of the British workforce, however, will be the self-employed people who constitute a significant part of the British economy. So far, not many measures have been declared to protect the interests of this class. It is expected that the Chancellor will soon come out with an announcement to address the concerns of this class of citizens as well.
Among the group of companies which are most hopeful of being selected to avail of this facility are SSP Group Plc, Unite Group Plc, Aggreko Plc, Greggs Plc and NewRiver REIT Plc. Most of these companies are either in the field of student housing or are providing utilities. The current scenario of the educational sector in the country is grim with many of the students in a shortage of funds to pay for their rent as most temporary jobs have been eliminated, which is putting student REITs in an immediate, crisis-like situation. Secondly, the utility companies would also be facing an immediate crisis as it would not be able to impress upon many of its customers to make immediate payments as they continue to face unemployment and fears of business disruption owing to the current crisis. It is in this regard that it is expected that these companies will get immediate relief from the government's current financing facility.
The first budget of the Boris Johnson government that was presented on the 11th of March 2020 also had a £30 billion stimulus package which included reimbursement of sick pay to employees who cannot attend work due to self-isolation and a maximum of £1.2 million interruption loan for small and medium enterprises which are facing disruptions due to the lockdown conditions. Since the day of the announcement, however, a lot of experts and industry lobby groups have voiced their opinion that the package is too small will be grossly inadequate given the magnitude of the global economic fallout of the pandemic.
Most recently on the 20th of March 2020, the Chancellor again announced a further £78 billion scheme whereby the government will pay up to 80 per cent of the salaries of eligible employees whom their employers do not fire because of the economic fallout of the outbreak. This scheme, which is unprecedented in the history of the United Kingdom, would see the government bear up to £2,500 per month for each employee who stays within rolls. While elaborating on this latest initiative, the Chancellor explained the move is an effort to protect more and more jobs in the country and that these unprecedented measures were the need for these unprecedented circumstances.
It is not just the United Kingdom which is taking such measures. Denmark has also stated that it will be reimbursing 75 per cent of the workers’ wages who will be staying employed in the country. The United States has also come out with its cash injection scheme whereby it will be making direct cash transfers to its citizens, and Italy has announced that it will also provide payment holidays for certain types of taxes and utility payments till the situation improves in the country. It will be worth watching, however, how far-reaching these measures will be in combating the fallout of this pandemic.
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