There are some words you say that you never regret. When Jeremey Vine asked me what I thought of Rish Sunak's budget on March 11 I said it was 'a disaster'. I said he had completely underestimated the impact of coronavirus.
I thought he would be back and revisiting his decisions very soon.
I was right: he was.
But now all his decisions taken during March look to be providing disastrous, as I admit I predicted each one would be.
As the Guardian reports this morning in an email:
Millions of self-employed people across Britain risk falling through gaps in the coronavirus wage subsidy plan and benefits system, according to the IFS and Resolution Foundation thinktanks. Many earn either too little or too much, or only started working for themselves in the past year, or pay themselves in dividends rather than salary — all factors that can disqualify them from receiving the assistance.
Their elaboration on this is:
Highlighting sizeable gaps in the government plan to pay 80% of employees' salaries and self-employed workers' profits as the crisis mounts, the IFS warns that 2 million people who work for themselves would not be protected because: they do not earn enough from self-employment to be eligible; earn more than the £50,000 threshold; or only started out working for themselves within the past year and therefore missing the threshold to prove their past income to receive wage subsidies.
A further 2 million more people who run their own company will also slip through gaps in the safety net deployed last week by the chancellor, Rishi Sunak, because they pay themselves much of their income in dividends, and less through a salary. A salary can be paid partially by the government, while dividends are excluded.
Amongst those impacted there will be several million households that will be out of cash soon - and where starvation will be the issue to be faced as April progresses.
But the issue is bigger than the failure of support for the self-employed. As the Guardian also reports:
Business leaders have warned that British companies are running out of time to stay afloat amid the coronavirus outbreak, after a survey showed a majority of firms had just three months of cash or less in reserve.
The British Chambers of Commerce (BCC) said companies across the country were suffering from a sharp and significant fall in domestic and overseas sales as lockdown measures brought many firms close to collapse, threatening widespread job losses.
In a survey of about 600 BCC members, 62% warned they had no more than three months of cash left to cover running costs. Conducted in the final days of March when Britain entered lockdown, the BCC warned the findings of the survey were expected to worsen over coming weeks.
Almost 1m small businesses across Britain are feared to be at risk of collapsing within the next month as they struggle to secure emergency cash, despite the government's efforts to cushion the economic blow and the Bank of England lowering interest rates to provide cheap financing.
And given that coronavirus has hardly begun to hit us yet, this is going to happen. The UK small business sector is being wiped out.
In its version of this story the FT notes:
So far almost no [small businesses] had been able to take advantage of government schemes designed to bail out struggling businesses. The survey conducted last week – several days after its start – showed that only 1 per cent had received help from the government-backed loan scheme for smaller businesses. This offers interest and fee-free loans of up to £5m for up to a year.
Bank executives have said that their systems have struggled to meet the high levels of demand for the package, which has caused delays.
The FT notes that the Business Secretary blames the banks:
Alok Sharma, the business secretary, said on Wednesday that it was “completely unacceptable” if banks were unfairly “refusing funds to good businesses in financial difficulties”.
He added that the taxpayer had bailed out the banking sector in the 2008 financial crash, and it was time for banks to “repay that favour”.
This is a comment that takes crassness into the realms of stupidity. I have already noted this morning that I am not a fan of banks. But what Sunak and Sharma are asking banks to do is take the risk on 20% of these loans to businesses that are in effect bust, guaranteeing that in due course the banks will follow them into the abyss. Bankrupting banks is not doing us a favour: it's just asking for another, and bigger bailout.
And the scale of the impact of all this on government finances has been grossly underestimated by the Chancellor. As the FT notes, 1 million people have now applied for universal credit as a result of the coronavirus downturn.
And as they also noted:
About half of UK companies are planning to furlough many of their staff because of coronavirus, according to surveys that threaten a much higher cost to the Treasury than expected.
The prospect of a higher than expected take-up of the furloughed workers programme comes as the government seeks to improve the terms of the loan scheme to help banks lend to more companies.
The reality is that the British economy is going to look like a wasteland by the time the summer arrives. There is a real chance that most small businesses will have failed by then. If they don't they will as they try to recover.
The scale of support now required for the economy is vastly bigger than anyone has ever imagined before.
The UK government has got its management of coronavirus horrible wrong. It could try to get management of the recovery from it right. But I am not optimistic on that score either. Unless something as big (at least) as the Marshall Plan is in the pipeline we're not going to come out of this for a very, very long time.
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I had the first call I was dreading, but fully expecting, yesterday. Client can no longer afford my services. So £4k a month of income gone. My business built from scratch to a £100k turnover in 6 months will lose all our clients in the next 2 months.
All my clients are furloughing their staff who will therefore still be paid. In the meantime my new business will receive zero income meaning 6 partners won’t receive any income and the 2 partners who saved up and quit jobs to establish this business will qualify for £0 even through universal credit.
The treasury will lose £40k in VAT and income tax too.
UBI is the only solution.
I’m sorry to hear that Tim
All I can do is bang in about it
Good luck
Thanks Richard, in the grand scheme of things we’ll be fine, it just really annoys me that we’ve been effectively abandoned.
I sent out 11k of invoices last month, have paid 2 x quarters of VAT, have records of all the distributions to partners, have 3 x signed contracts for 6-13 months of consultancy with major companies. And because we were formed in June 2019 we are entitled to nothing.
The government has 20 years worth of data on me, they have a pension checker which shows I’ve paid into the system every year, they have records of my directorship, corporation tax payments, employers + employees NI contributions. I’ve been lucky enough never to have to claim any benefits, never missed a payment, perfect credit record. Sensibly saved away with ISA / 12 months + of living expenses in the bank so I could open my dream company.
Now my entitlement to any help is zero.
Whilst someone (and I’m not disagreeing everyone should get support) who started work last month can get £2500 a month wage support.
Someone who has never worked can get £400 a month + housing + CT benefit etc
Someone with a business thriving 18 months ago can get £2500 a month (this would have been me if this had happened a few years earlier)
Anyone furloughed gets 80-100% of their wage without having to work.
Even someone in the same position as me with no savings gets £400 a month UC.
Even worse people like my wife have to work for less money than we are paying companies to pay their staff not to work!
I know the arguments for payroll support but there are so many gaps and perverse incentives. The company who have given notice on our agreement have furloughed all their normal staff and are using senior managers (on temp reduced wages) to the work they pay us to do. So the end result is worse for economic activity than before.
You hit the nail on the head – the problem is the gaps
So another week slips by and Sunak is in need of another attempt at getting his budget right!
I hope you and the collaborators are turning the heat up to full now – it is essential and the only way these millions of SE most in need will get any food this month. I’m serious.
Worrying about these who may get marginally more in absolute terms as the reporting shows is just pathetic whatabouttery as I have said before – every penny will be spent on essentials and go into the economy.
Bozo and his Brittania first to the ditch tories, are fiddling, as they spread the flames.
Bozo, with his laurel crown, and bunga bunga toga twitter and FarceButt broadcasts, hides behind a ‘i took a bullet too’ farcade (shake hands with the infected; he said he did!)
Promised 10,000, 15, 20, 25K, barefacedly lying at the last pmq’s as jezza put the facts – yes he did.
The media finally reveals its not even 8,000.
No doubt bozo and his minders Spaffings and Laurak and the media choir are singing:
‘Who cares how many tests, or masks, we got body bags galore!
We’ll use these instead! Nobody can say the government is not prepared, now to war!’
I kid you not – Pompeo is rattling his gauntlet at Iran again – as the US still refuses medical supplies to be sent by anyone and sustains the sanctions and maximum pressure on that much targeted peoples. I read the first non-Swift banking transfers took place between the EU and Iran this week too. Good.
I just never really understood why the support went through the banks.
Wouldn’t it just have been much easier to do it direct through the Treasury or HMRC? It just feels all rather over-thought.
The government wanted the banks to refuse the loans on the basis of the risk so that the government did not have to pick up the bills despite saying it would
Thinking about the UC applications, I think that this underpins for me what has been happening in the wage economy this last 10 years – that many people have been living sort of hand to mouth – nothing but a few weeks from having severe financial problems – since 2008 (if not before).
It also indicates to me why the public attitudes have hardened to things like immigration, the EU and disability and why they fall for being manipulated by shysters like Cummings and Lynton Crosby.
Life in this slave state of ours is very hard so what can we expect from the population in terms of humanity? The state needs to do more – not only is the Tory way cruel, but Labour needs to unlearn its lessons from the Clinton administration very quickly indeed and actually do something about this if it ever is fit enough to be in Government again.
I too have suffered under the Tories – we used to be months away from financial disaster at one time but those months have shrunken in number. And we’d have to consume all of our savings (already dipped into ) before we even got the privilege of being made to wait for our UC payments.
What an awful place to live this country has become. This country is dominated by fear.
In one way it’s good that the Tories are at the helm.
The radical changes needed are going to be implemented by the “Party of Business and Finance”.
They can’t blame anyone else, though I’m sure they will try.
You can only imagine the media response if it was a Labour government in power.
The Tories a ripping up their own rulebook.
The down side is that they may not be anywhere near radical enough.
Tim K — “UBI is the only solution.”
UBI is a very bad idea. Writing about the rapidly growing cost of “welfare” programmes in the US 35 years ago, the American economist Hyman Minsky put it better than I can:
“Social justice rests on individual dignity and independence from both private and political power centres. Dignity and independence are best served by an economic order in which income is received either by right or through a fair exchange. Compensation for work performed should be the major source of income for all. Permanent dependence on expanding systems of transfer payments that have not been earned is demeaning to the recipient and destructive of the social fabric. Social justice and individual liberty demand interventions to create an economy of opportunity in which everyone, except the severely handicapped, earns his or her way through the exchange of income for work. Full employment is a social as well as an economic good.”
— Hyman Minsky from the introduction to Stabilizing An Unstable Economy (1986)
Mynsky’s assertion about UBI and full employment depends on the efficient working of the wages system. It is because that has broken down that we now need UBI
Hi George
Minsky was living in a different time though.
He was looking at a world of 35 years ago.
The next wave of automation is going to squeeze more people out of the productive processes.
What do the new jobs look like that will allow for full employment?
To tackle climate change don’t we all need to do less? The act of just going to work involves consumption.
How many (of David Graeber’s) Bullshit Jobs already exist out there? (Or did until 3 weeks ago!)
I agree that a UBI will need a change of philosophy on the value of ones self worth and work, but humans are very adaptable.
If a UBI is universal (clue is in the name) then everyone will receive it and no stigma is attached. It just becomes the norm.
Non of us are truly independent beings. We are all totally dependent of the rest of society/State for our wellbeing.
Minsky is wrong.
Humanity produces enough to support everyone.
A UBI allows a basic level of comfort for all. Those who work will receive more but the basic societal safety net provides far more dignity than stepping over a homeless person on the way to work, or a carer looking after an ill parent having to survive on £1.89 an hour.
Tim K & Vinnie
Our future is already being indicated – why do you think companies like Experian are touting their instant credit rating service as an app on your phone?
As American economists Louis Hyman and Richard Woff have pointed pointed out, the way forward now is for capitalists to give you interest bearing credit to spend in the economy rather than wages – debt makes the capitalists more money than having a payroll.
I remember in the 70’s that we were told that in the future, we would all have more leisure time. It just seems to me that they hadn’t figured how we’d pay for it. Now I think we are beginning to find out. Through debt and interest rates – i.e. not with real money.
Unless of course we will have to have UBI and /or something with the same policy outcomes from the State. Personally, I look around me and all I see is that loads of things need to doing – there are good jobs to be had everywhere looking after and supporting people, the environment, regulating capitalism, collecting taxes from here and overseas and holding back inappropriate automation.
George,
To add to others who have replied to you already.
The benefit recipients don’t have ‘No Value – every penny of benefits is expected to be SPENT.
The spending drives the subsistence economy – from landlords/mortgage capital to utilities to food, clothing and furniture, it even allows for luxuries such as booze, tobacco and gambling.
At all stages it is generating revenue and profits for the suppliers of all these items.
At all stages taxes are collected back to the state – from rates, vat, income tax , corporation tax and dividend tax.
So not per se worthless you see?
Our problem is with the misguided philosophy of self worth. Does the trustfunder playboy/girl or one who has a pension or lives off their investments or indeed the lottery winner, worry about lack of self worth because they haven’t got a ‘job’ or doing anything productive with their days?
Why should a ‘benefit recipient’ consider themselves worse than a trust funder (Or in the old label an aristocrat) or even a soldier who gets paid to do nothing except be on call of deployment?
You will, if you accept the above mind shattering paradigm, then inevitably counter with ‘why should they bother working’?
To improve their life beyond subsistence.
That means if you want a different house, a newer car, a luxury holiday, or more expensive foods ..,luxuries – than you will seek out means of increasing your income to achieve these goals.
I trust that allays all your fears.
Remember that as robots and AI take over more human functions (to reduce labour coats and increase profits) there will be less actual work to do. What do you want? Something like FDR’s New Deal – pay people to move wheelbarrows of soil just for the sake of it – so they feel they have ‘earned’ their Dole and aren’t self stigmatising as ‘beggars’ ? A world full of ‘Gis a job’ Yossers!
Which then leads to the Universal Basic Income that Richard Murphy has written about …
As for Minsky, his background, the Marxist Economic Shools of Thought created to hide the bankers behind hundreds of years of global robber imperialism – i won’t say more here.
Vinnie – the Tories won’t be doing anything radical. They will save the banks and Mr Branson. Then we’ll be back to austerity to pay for it. Don’t believe any talk of a new dawn. It just ain’t gonna happen and we’ve got four more years of this, not to mention climate change and Brexit.
Rod.
You may be right, but unless something radical is done there won’t be much of an economy for the Tories to work with!
Saving the Banks and Branson won’t be enough in itself. If there is no economy, how are banks going to function?
The economy is heading for uncharted waters.
Rod.
The response has to be radical or the very fabric of society will unravel.
The penny is yet to drop for the Tories but events will force their hand eventually.
The alternative is chaos.
A piece in the Italian La Republicca comparing the chaotic situation there (web site collapse under the domand) with German efficiency – an Italian working as a freelance video editor in Berlin, after losing his clients was able to get a €5000 benefit grant in a few days
https://www.repubblica.it/economia/2020/04/02/news/il_caos_inps_e_il_caso_tedesco_cosi_ho_ricevuto_un_bonifico_da_5_mila_euro_in_pochi_giorni_-252890590/
The Job Guarantee, with the wages at a genuine living wage, is a better way to ensure a decent income for all. This is a component of the Green New Deal. It is not workfare as you can stay on the significantly lower value current benefits if you wish, but I think few would choose to do so. It satisfies Minsky’s requirement in that folk are doing a job and thus feel they are contributing to society. These jobs would include any necessary training, so you are improving folks chances, there is no need any more for a minimum wage as nobody is going to accept any job that pays less than the living wage you get in a Job Guarantee post (so no getting forced into zero hours or self-employment), and it is a stepping stone to a better job elsewhere. It is well established that employers’ think there must be something wrong with you if you are unemployed for any length of time, and much prefer to poach somebody already in employment. There is also no shortage of things that need to be done, whether that is green projects like insulating our 30 million properties, caring for the elderly, resurfacing our third world standard streets, etc. And of course as Richard has pointed out many times there is no problem about ‘how do we afford it’.
The Green New Deal seeks to create jobs in every constituency because that is what we believe people want
I think that in the main, most people would prefer to work and have some satisfaction at seeing increase that results from it.
If you have watched those tv programmes where people are dropped off into the (sort of) wilderness, they quickly try to build something, find something to eat, share what they have and berate those who don’t want to cooperate. Some in the group can be encouragers who help the seemingly unconnected to join in, others castigate the bullies.
Tribes are like that – self organising, so in general, I would say that people do want to do something useful.
Indigenous communities who receive universal welfare, seem to fare quite badly.
Having said all of that, I would quite happily take UBI – retirement beckons if I can just find some funding!
Interesting Angle from Bild Magazine in Germany on March 19th 2020 who say Beijing is attacking while thousands of Europeans contract Corona and millions fear for their existence every day.
Hidden behind declarations of solidarity, China plans to buy out our troubled companies and infrastructure.
https://www.bild.de/politik/kolumnen/kolumne/kommentar-zur-rolle-der-chinesischen-regierung-china-will-die-corona-krise-ausnu-69502214.bild.html
Maybe
But that’s only because they will create the money
Andthere is not guarantee that the companies will be viable businesses in a month or two!
When you have a government of Thatcherite Libertarians who’ve been brainwashed over four decades to believe government has no money of its own it’s going to take some time to detoxify themselves. The fear of losing much of their money is clearly going to be the driving stimulus but pumping adequate amounts of government created money into the economy will be a “dragging through the hedge backwards” time consuming exercise as reality dawns!
Pilgrim Slight Return @ 2.26pm
I’m not sure that an economy based on interest paying credit has much legs.
An economy can only take on a certain level of private debt before the whole thing collapsed under the weight of the debt. In the short term yes perhaps, but it would not last long.
Take growth out of the equation (as we must) and then all interest payments are no more.