Lockdown – reflections at the end of week 10
This week’s thoughts pick up on a couple of themes from earlier pieces in this series.
The first picks up on how last week’s piece closed, with commentary that it is important for government to lead and to treat the electorate as adults. Wherever you stand on the Dominic Cummings question, this has been a poor week for the government in leadership terms. The Cummings affair and how it has been handled at the start of the week and the reported failure of the track and trace scheme to hit the ground running towards the end of the week have not played well and have both caused upset and damaged credibility. There is restorative work to be done to ensure that the welcome further easing of the lockdown is not accompanied by a patient population becoming less compliant with health advice and lockdown guidelines with the risk of tighter lockdown being reintroduced on a national or local level.
The second returns to the vast and complex job which falls to the Chancellor and his team at the Treasury. Whilst there have been bumps along the road which will be bound to happen in tackling such a universal economic event, the direction of travel which the Chancellor has followed has been effective and has drawn praise from many business leaders. The take up of the furlough scheme is perhaps the most striking evidence of this, and we have seen situations in our work with clients where substantial job losses would have taken place were it not for the furlough scheme. Whilst the Covid loan scheme has seen a lower take up than might perhaps have been anticipated and the self-employed have a long wait for help, tax and rent deferments and bounce back loans have had a substantial take up. These initiatives have been supported by changes to insolvency law which are likely to come into force next week, including a new moratorium procedure to enable companies to look at financial restructuring and formalising the previously announced policies to restrict use of winding up procedures against Covid affected companies and to suspend the wrongful trading regime on a temporary basis.
We are now all looking to the Chancellor as to how policy will be tailored around the gradual re-opening of businesses, particularly bearing in mind that, in the case of many businesses, their ability to re-open will not mean an immediate bounce back to pre-lockdown levels, a view which the Chancellor shares with many other commentators. There will be fine judgements to be made, starting with today’s anticipated announcement about the furlough scheme, where it is expected that the process of weaning businesses away from furlough by the requirement for employer contributions alongside part-time furloughing will begin. Whilst necessary, if the timing of this process is misjudged, it carries the dual risks of job losses and business failures. Other challenges will include
· ensuring access to working capital in a few months’ time where loans and deferments will start to be repaid but businesses will also have greater cash requirements to fund increasing activity;
· in an economy which is still significantly consumer led, sustaining consumer confidence to spend against a background of job insecurity; and
· which direction to go in with both tax and public spending with a need to balance the servicing of significantly increased government borrowing against the adverse economic effects that are likely to flow from an early increase in tax and reduction of routine government spending
It is in all of our interests that the Chancellor continues to show the calm assuredness and leadership in approaching these questions which have, from time to time, eluded some of his colleagues, and we wish him good luck to go with it.