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Sunak Says Bar for U.K. Company Bailouts Exceptionally High

Sunak Says Priority Is Protecting Jobs as U.K. Leaves Lockdown

U.K. Chancellor of the Exchequer Rishi Sunak said he will set an “exceptionally high” bar for companies seeking taxpayer-funded bailouts during the coronavirus pandemic, days before the government sets out its plans to revive the country’s economy.

“This is not my money,” Sunak told Bloomberg Television on Friday. “It’s not government’s money. This is taxpayers’ money. I shouldn’t be sitting here trying to pick winners.”

Sunak’s remarks are a warning to corporate giants that they will struggle to secure government funding and will instead have to turn to lenders, shareholders and new investors for help first. The government has come under pressure to bail out companies including Virgin Atlantic Airways Ltd., Tata Steel Ltd. and Jaguar Land Rover.

Sunak, 40, spoke to Bloomberg as he prepares to outline how he will reboot a country that has been plunged into a recession by a three-month lockdown. With much of the economy set to reopen from July 4, the chancellor’s comments are a sign he is likely to hold off announcing any major fiscal measures until later in the year.

In a wide-ranging interview, Sunak:

  • said the government will “double down” on its pledge to invest in infrastructure when Prime Minister Boris Johnson gives a speech next week
  • dropped a strong hint that he isn’t preparing to cut Value-Added Tax imminently, citing “reasonably robust” household finances
  • reiterated that his his 60 billion-pound ($74 billion) job-protection program will end in the fall -- but indicated he is weighing direct support for the industries worst-hit by the pandemic
  • warned that consumer confidence won’t return overnight
  • said the U.K. needs to return to “strong and sustainable” public finances” over the medium term.

Sunak said his main priority will be to protect jobs as Britain emerges from a lockdown that has left millions of workers dependent on government support. The best way to protect jobs, he said, will be to safely re-open the economy.

“There are very tragic projections for what might happen to employment, there’s enormous dislocation in the labor market,” he said. “My priority absolutely is to try and protect and preserve as many of those jobs as possible.”

Sunak Says Bar for U.K. Company Bailouts Exceptionally High

Sunak has had a baptism of fire since his surprise elevation to the post in February. As the coronavirus spread, the British economy shrank by a fifth in April, and jobless claims doubled to almost 3 million. After he announced a succession of measures previously unimaginable for a Conservative Chancellor, borrowing has soared, taking the national debt above the size of the country’s gross domestic product for the first time since the 1960s.

Even so, Sunak said household finances appear to be in good shape, with people spending less during the past three months of lockdown.

“Not Typical”

“This is not a typical economic crisis where incomes are hugely impaired,” he said. “Because of the furlough scheme protecting incomes, and because we’ve essentially stopped people from going out, we’ve shut down large elements of discretionary consumer spend.”

Households added more than 30 billion pounds to their bank accounts during March and April, the most on record, according to the Bank of England. Meanwhile, consumers repaid an unprecedented 7.4 billion pounds of unsecured credit in April, the first full month of lockdown. That lays the ground for a sharp pick-up in spending and the housing market.

Two former chancellors -- Sajid Javid and Labour peer Alistair Darling -- have urged Sunak to cut VAT temporarily to stimulate demand. It’s a measure Darling brought in for 13 months from the end of 2008 to help the U.K. recover from the global financial crisis. Asked whether he thought such a policy works, Sunak dropped a strong hint it’s not something he is considering imminently.

“It’s probably less that income is the issue, and more that psychology is the challenge” in persuading consumers to go out and spend money, he said. “The most important thing for the economy now is to reopen it and for confidence to return,” Sunak said. The latter, he added, is not something that will happen overnight.

Most shops have been allowed to reopen this month and, from July 4, the government has said pubs, restaurants and hairdressers can reopen, so long as protective measures are brought in to limit the spread of coronavirus.

Mindful that it will take time for businesses to reopen, Sunak has already extended the furlough program until the end of October, with businesses taking on some of the expense in the program’s last three months.

The unprecedented policy has seen the government pay a portion of the wages of more than 9 million workers -- but it has faced criticism from the opposition Labour Party for failing to protect small business owners and those who have recently changed jobs. Shadow Chancellor Anneliese Dodds has called for an emergency budget next month, with a focus on “jobs, jobs, jobs.”

Sunak reiterated that he intends to end the program in the fall -- but suggested that he is considering more targeted support for the worst-hit industries.

“It’s not sustainable for a scheme of that scale to be sustained indefinitely,” he said. “There are other ways we can support the labor market,” including, he added, “direct fiscal support to those particular industries most affected.”

©2020 Bloomberg L.P.