Lockdown Leaves Britain Dreading When the Money Runs Out
(Bloomberg) -- For Graham Lancaster, the owner of a real estate agency in the English county of Kent, the alarm will go off in three months.
Britain is headed into its peak of the coronavirus outbreak, and companies and households are busy doing the math to see how long they’ve got before the money runs out, just as they are across Europe. The difference is that the U.K. economy, vaunted by the government and Bank of England as flexible and resilient, already entered a new era of uncertainty after the country left the European Union just weeks before the pandemic hit.
Everywhere, businesses are closed, lockdowns are in place and governments are announcing eye-watering sums to try to mitigate the fallout from coronavirus. The U.K.’s compensation plans are slowly kicking into gear as people steel themselves for weeks, or even months, of virus-related disruption.
Lancaster’s calculations are being repeated up and down the country. A survey from the British Chambers of Commerce published on Wednesday found that 6% of firms had already run out of cash, while 16% had less than a month in reserve and 41% could make it potentially to three months. Meanwhile, a poll by Opinium of 2,005 adults showed half of workers don’t have savings that can be accessed if they lose their job.
“We don’t know how long this is going to go on, and we don’t want to go into debt to survive,” said Lancaster, 65. “And it is about survival at the moment.”
The virus spotlight is firmly on Britain with cases expected to rise over the next week after they started to decline in Italy and Spain, Europe’s hardest-hit nations. Since the government unveiled more than 400 billion pounds ($493 billion) of aid and loan guarantees in March, Prime Minister Boris Johnson was struck with the disease and remains in the hospital and the country has struggled to expand testing and get a grip on the pandemic.
Financially, unlike the bailout of Greece or U.K. banks during the financial crisis that started in 2008, nobody knows the scale of the challenge. The eventual bill isn’t quantifiable as thousands of people die and the authorities are worried about easing restrictions too soon. A report on Thursday showed the British economy shrank in February, putting it on an unsteady footing even before the lockdown, which is all but certain to be extended.
What is known is that Britain’s response to the pending economic crisis was quick. The country won praise compared with the rest of Europe, while its public health response faced criticism. The government’s measures include a pledge to pay 80% of the wages of temporarily laid-off employees and offer some support for those who run their own businesses.
But the cracks are already beginning to show, and even Chancellor Rishi Sunak admits he can’t save every firm. According to the British Chambers of Commerce survey, just 1% of companies have successfully managed to access the Coronavirus Business Interruption Loan Scheme.
Bloomberg Economics expects the U.K. economy to contract 2.7% this year, with unemployment jumping to as high as 6% in the summer, from under 4% currently. Others see a far gloomier picture, with analysts at bank Nomura predicting the jobless rate will hit 8.5%—the equivalent of nearly 3 million people.
The uncertainty and political deadlock surrounding Brexit had already cost the economy 130 billion pounds, leaving it 3% smaller than it might have been had the U.K. remained in the EU, according to Bloomberg Economics.
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Indeed, the crisis has also come at particularly bad time for U.K. workers. While employment is at a record, real pay has only just recovered to levels seen before the financial crash.
In a speech in Oxford in February, Bank of England Chief Economist Andy Haldane said that the nation has seen the “scourge of job insecurity” replaced “by the scourge of income insecurity”—a problem now exacerbated by coronavirus. The U.K. has seen the biggest drop in job listings among major economies since the crisis began, according to Indeed, the world's largest employment website.
Haldane also pointed out that the rise of flexible jobs in the gig economy has made work more precarious, citing TUC figures showing that one in nine people—the equivalent of about 3.8 million workers—is in insecure work, similar to the number of unemployed during the early 1980s.
More than 1 million people in the country have applied for welfare since mid-March, and the expected probability of losing a job in the next four months is more than 30%, according to research from the University of Oxford. Radio phone-ins and helplines since the U.K.’s lockdown started on March 23 are jammed with people caught between the cracks.
David, a 53-year-old painter and decorator from Buxton, central England, has back problems that had left him unable to work since last year. Now, his wife’s job as a child minder has been severely disrupted by the pandemic. That’s left them worried about covering the mortgage and essential bills, forcing him to borrow money from family members and ask existing creditors for a payment extension.
“I’ll be honest with you, my head’s been spinning that much lately, I just don’t know what to do,” said David, who declined to be identified by his full name. “When this blows over, the first people who will be knocking on the door is the bank wanting the money. That will be the pressure, afterwards.”
Debt charity Stepchange, which fielded the equivalent of one call every 49 seconds in 2019, has warned that the crisis could push many others into financial difficulties.
Lancaster, the realtor in Kent, has already furloughed five of his seven staff members via the government’s scheme because the housing market is effectively frozen. Until that money comes through, Lancaster is still on the hook to pay those salaries, which he is voluntarily topping up to 100%.
Even then, a number of his workers are largely commission-based, meaning they’ve taken a large hit to their incomes. When the government money comes through, it won’t do anything to help the lost commission, which accounts for about half of take-home pay for some staff.
For Lancaster, who has been in the business since 1982 and set up his own firm in 2007, the challenge isn’t even comparable with the financial crisis.
“It’s a much worse situation because 2008 was a purely financial recession, whereas now, it’s an actual lockdown,” he said. In terms of his workers, Lancaster says he’s trying to “keep in touch with them, and how their family are doing. It’s difficult, they’re suddenly without an income.”
©2020 Bloomberg L.P.