Banks and banking
The Coronavirus Business Interruption Loan Scheme (CBILS) has been a damp squib for borrowers as banks appetite for risk, even if limited to just 20% of lending, has shown a marked lack of enthusiasm for getting funds out the door.
The Bounce Back Loan Scheme (BBLS), the small company lending scheme, has proved enormously popular. However, there are mounting concerns about the level of fraudulent loans obtained and unnecessary borrowing as firms took the opportunity to recapitalise with free money for a year, with the option of retaining the cash for a further five years at an unusually cheap fixed rate. An unforeseen problem with the legislation has been the effect of the rule that a company cannot access CBILS whilst they have a BBLS loan. For companies that require more than the maximum allowed under the BBLS scheme, the marginal hike in interest costs converting to a slightly larger CBILS facility is very high, and banks are incentivised to exploit this. Thus far the Chancellor has declined to address this.
A significant problem has emerged where it is proving difficult if not impossible to open a new business bank account with a new business lender. Reports suggest that this has locked over 700,000 small businesses out of accessing BBLS loans. The challenger banks which are willing to offer accounts to new business customers have proved to be unable to support their new customers with BBLS facilities. Similarly the banks have been keen to close dormant accounts and many small charities find themselves with cheques issued when their bank has closed their accounts which they are unable to cash as they cannot open a new account elsewhere.
Markets are predicting tough times ahead for the banks, with many of their share prices having seen hefty falls since summer peaks. The great unknowable at the moment is how much stress the banks are actually under.
Helicopter money
Grants, or helicopter money as some economists regard it, have been a significant component in the financial assistance armoury during the first wave. Grants can be market distorting as a blunt instrument. Furlough, self-employed grants, rates relief and cash payments to rate-exempt tenants have directed large amounts of money, seemingly reasonably well-directed, to where it has been needed. However, a very large number of people, freelancers in the main, and also the more recently self-employed, have found themselves entirely ignored and the pain of the fallout in the economic landscape has affected this group, almost randomly, severely.
The difficulties in allocating grants has become apparent with organisations such as the Arts Council awarding grants that at first sight seem irrationally generous to some recipients, and inexplicably unsuccessful to other applicants.
The eligibility for grants and support, particularly for the self-employed, has rewarded those who have fully disclosed prior earnings to HMRC. In a positive yet unforeseen way, this appears to be driving people to see accountants to properly declare their circumstances.
What has worked as intended?
The government’s headline initiative has been the furlough scheme, running for eight months from March to October. At its peak economic impact, 9.3 million people’s jobs were dormant and their salaries paid by the State. For those who have been able to return to work following furlough, the initiative provided an unexpected sabbatical, albeit one with reduced spending opportunities. Overall, these individuals’ financial experience has been largely positive, contributing to the £7.4bn paydown of personal debt during lockdown.
However, for another group of those furloughed however the lockdown will prove to have been gardening leave pending unemployment. With unemployment standing at 4.5% at the end of the scheme, it looks as if the policy has worked as planned for employees. When then scheme was extended early in the first wave, there were some predictions that it would cost £100bn, but as of the 20th of September the cumulative cost was £39.3bn. This suggests that the final bill will sit at around £50bn, a cost of just under £5,500 per job on average. Add to that the job retention bonus of £1,000 payable in January for all workers still in post, the average cost per job should work out at £6,500. Of course there are the instances of furlough fraud running at an estimated £3.6bn, or 7% and a surprising 80,422 businesses deciding that the £215,756,121 they legitimately claimed from the scheme should be donated back to the Treasury.
In terms of unintended consequences, it may turn out that fewer people than usual will have changed employer during the year. Thus far, the scheme has excelled in preserving jobs, with the predictions of unemployment reaching 9% to date proving to be unfounded.
What now?
As the second wave of Covid-19 hits, it is apparent that there is less money available in the armoury than in March this year. The goal has shifted from saving lives to saving lives and the economy. The political consensus is split and the ‘whatever it takes” mantra has moved from referring to an open cheque book, to the need for tough political decisions.
With the EU post-Brexit trade deal position as yet unknown and the deadline for implementation looming as the end of the year approaches, we are living in very uncertain times.
So, in attempting to plan for the future with your clients, it is clear that picking asset classes, trading areas and minimising downside exposure are going to be major points of focus for advisers and their clients, but so too should opportunity.
The tide is running in the direction of anything that supports home-centric working and living. Therein lies opportunity. Also, the drive towards sustainable investment and to “build back better” continues to be encouraging but reminds us that the next big challenge – facing the planet – that of tackling climate change – looms larger than ever.
