U.K.’s Faltering Economic Rescue Adds to Challenges for Johnson
The economic package too is coming under strain amid soaring welfare claims and complaints from companies facing ruin.
(Bloomberg) -- As the death rate rises, Boris Johnson’s government is being hammered in the U.K. for failing to get the health service ready for the coronavirus onslaught. Now what had been his saving grace -- a comprehensive economic package -- is coming under strain too.
State hospitals are running out of face masks for medics, and doctors struggling to get themselves tested for the disease. As if that wasn’t enough to fuel aggressive domestic criticism, soaring welfare claims and complaints from companies facing ruin are now fueling fears that he’s not doing enough to contain the fallout on people’s livelihoods.
More than one in four businesses have cut hours or jobs in recent weeks, while nearly half of all British firms say they have been hit by the pandemic. In the past two weeks, close to a million people have claimed state welfare to boost their incomes.
According to a study by Oxford University, the crisis could mean that almost half of British workers will struggle to pay bills in the coming months.
Ten days after Johnson ordered a nationwide lockdown, he’s now recording his own shaky, hand-held videos from his quarters inside Downing Street, where he’s isolated himself after contracting the virus. His health secretary is having another go at a new plan to ramp up tests, while the finance minister is expected to overhaul his own scheme for lending to businesses, amid anger that they’re just not getting the money fast enough.
The lockdown is having a “profound impact on working families,” said Nye Cominetti, senior economist at the Resolution Foundation think tank. “With almost half of firms saying that they have been impacted negatively by the crisis, we can expect further job losses in the near future.”
The question being asked is how the U.K. was apparently so poorly prepared compared with other European nations. The outbreak arrived in Britain several weeks after it had taken off on the continent, and evidence of the threat it posed was clear from China at the beginning of the year.
The answer lies partly in the different economic and public health models of Britain and some of its neighbors, as well as a decade of austerity.
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Compared with Germany, the U.K.’s ratio of testing for the virus appears to be dire. Johnson’s administration has promised to ramp up testing to 25,000 people a day by the middle of April. Germany is already at 50,000, and the British target now looks likely to be missed.
According to two people familiar with discussions in London, the U.K. never had a hope of emulating Germany. A federalized health-care system means there are more hospitals per person in Germany than in the U.K., more laboratories for testing and more intensive care beds. Germany’s capacity for manufacturing critical medical kit such as ventilators is also far better established than in the U.K., one of the people said.
Herd Immunity
As recently as March 11, officials and experts working on the government’s preparations still did not think the pandemic would be a major threat, the person said. It was clear at that point that the country simply did not have the capacity to test everyone who was likely to catch the disease -- and that buying in kits would be very difficult, the person said.
So the government effectively gave up widespread testing, and pursued the now highly contentious route of allowing most of the population to become infected to acquire a degree “herd immunity.”
On Wednesday, Johnson promised to work hard to deliver a massive increase in testing rates, but that didn’t stop national newspapers from savaging his government’s failures. The prime minister’s spokesman, James Slack, conceded the point.
“We acknowledge that more needs to be done in relation to testing,” Slack said on Thursday.
Now the death rate is increasing exponentially. By Thursday, 2,921 people had died in the U.K., an increase of 569 in a single day.
Grim Picture
The economic picture is no brighter. Ministers have voiced anger at banks for failing to deliver loans to companies in need, despite government promises to guarantee lending. More than half of firms have just three months’ cash in reserve or less, according to the British Chambers of Commerce.
“Time and again we’ve heard from members who’ve approached their bank seeking an emergency loan, only to be offered anything but,” said Mike Cherry, national chairman of the federation of small businesses.
Economists say the plan will eventually help businesses and limit the fallout. But if companies aren’t able to secure bridge loans before payments kick in, “delays could result in greater initial job losses,” said Allan Monks, an economist at JPMorgan Chase & Co.
Austerity
While the U.K. entered the crisis in a better fiscal position than several other European countries, the cost of that has been a decade of controversial austerity and deep spending cuts.
Funding for the National Health Service was largely protected, though not increased as much as some called for. Care for the vulnerable and elderly population was neglected, putting pressure on hospitals, while other services, including policing and welfare were cut.
The virus has blown away benign fiscal projections made less a month ago, a point reinforced last week when Fitch Ratings downgraded the U.K.’s credit grade.
But the scale of the economic damage means the government “could soon suggest more stimulus,” according to Bank of America economists, who now expect gross domestic product to shrink more than 7% in 2020.
The labor market, which has defied the economic wobbles over Brexit, is set for a battering too. Bloomberg Economics is predicting 700,000 job losses, which would take the unemployment rate to a six-year high of 6%.
Without the capacity to conduct enough virus tests, an economic rescue vehicle struggling to make headway, and a rising death rate, Johnson could be forgiven for losing faith.
But in a video posted on social media, and apparently recorded on his own cellphone, the prime minister insisted the country’s sacrifices “will begin to start” to push the death rate down.
“I’m absolutely confident we will beat it,” he said.
©2020 Bloomberg L.P.