British economic packages to face the repercussions of the Corona virus

Written by Dr. Ahmed Zikrallah – Egyptian Institute for Studies

The British economy is currently facing the second blow after the repercussions of leaving the European Union, which continued for the three years following the exit, and despite some improvement in economic performance by the end of 2019, but before the outbreak of the Corona epidemic, a state of pessimism prevailed about this performance for the three years beginning in 2020 .

Therefore, the research on the repercussions of the Corona virus on the British economy, and the measures taken by Britain to confront these repercussions, must take into account the early start of some negative symptoms that have persisted since the exit, and the extended economic policies since then.

The paper will attempt to clarify the state of the British economy after leaving the European Union, how the country will face the negative effects of this exit, the negative effects of the Corona virus on the British economy, the economic policies that the country used to confront these repercussions, and the extent of their compatibility with the pillars of the capitalist system and globalization, and the role of the central bank in it, In addition to its generality and its inclusion of all classes and institutions of society, and the possibility of preventing it from further poverty and unemployment, this is what the paper tries to address through the following points:

First: The British economy before the outbreak of the Corona virus:

Over long decades, the British economy was one of the strongest economies in the European Union. Since Britain joined the European Union in 1973, the British economy has grown steadily, growing in 45 years by 103%, and during the period between 1973-2016 the average annual income of a British citizen has grown by an amount. 79^[1]%.

And after the Brexit referendum in 2016, many analysts believe that the greatest damage to Britain has become evident in the decline in the country’s economic growth, due to the uncertainty that accompanied the exit process, as the growth of the British economy slowed from 2.4% in 2015 to 1.3% in 2018, then 1.4. % In 201^[2]9.

GDP also declined steadily, losing 500 million pounds in 2016, increasing losses to 22 billion in 2017, and then jumping to 132.8 billion in 2019^[3].

International investment bank Goldman Sachs estimated the value of Britain’s weekly economic growth since its vote to leave the European Union in 2016, at 600 million pounds ($ 787.5 million). The bank also estimates that the British economy has performed less compared to other advanced economies since Mid-2016, when it lost nearly 2.5% of GDP compared to the growth pathway before the referendu^[4]m.

It should be noted that over the course of 2019, the British economy cohered and relatively resisted, registering a growth of 1.4%, at a rate higher than the growth rate of the European Union, and analysts attributed this cohesion to the following reasons:

• Government spending increased by 2.1% during the run-up to the elections, knowing that the increase in that spending was in full swing during the whole year, registering a growth of 4.4%. Nevertheless, there was no economic growth spurt equivalent to that “generous” public spending, and this is due to the aggression of companies. In the first quarter of the year, there was an increase in the storage of goods and raw materials, as a precaution to leave the European Union without any agreement, and that storage was followed by a contraction in the second quarter of the yea^[5]r.
• The decline in industrial production, especially the automobile industry, is offset by an increase in services and construction activities.
• The Office for National Statistics indicated that household spending supported the economy after the Brexit referendum, and then returned to its lowest level in 4 years. For the first time in decades, families are saving more than they consume, given that the labor market is active and wages are relatively high. In the opinion of analysts, this decline is economically unjustified and not understood at the psychological and social level, and indicates a great fear of the future. Analysts were waiting for the end of the first quarter of this year – before the spread of the Corona virus – to see if the matter was deep, sustainable and worrisome. Or a passing seasonal season.
• On the other hand, the Monetary Policy Committee at the Bank of England (the British Central Bank) had predicted – before the outbreak of the epidemic – growth of the British economy that did not exceed 1.1% annually, on average for the next three years, noting that the 2020 forecast is 0.8% instead of 1.2%, and in 2021. About 1.4%, and in 2022 about 1.7%. These expectations are considered the worst for the Bank of England since the end of World War II, which also indicates the British central’s vision that the British economy will continue to suffer after Brexi^[6]t.
• It should be noted that these pessimistic expectations were before the outbreak of the Corna virus, which increased sharply after the outbreak, and was supported by the economic results for the first and second quarters of 2020. Also, that pessimism is partly due to the repercussions of Brexit, and therefore it can be said that the depth and strength of Corona’s repercussions are not related to what happened before it.

Second: the repercussions of the Corona virus on the British economy:

The year 2020 was supposed to be the transitional stage between the signing of the United Kingdom’s exit from the European Union and the implementation of this agreement on the ground, which was set for implementation at the end of December of this year, but the repercussions of the Corona virus came to continue the economic downturn that began at the end of the year 2016.

 And after Britain was pursuing a different policy than most countries in confronting the Corona virus, which relied on the strategy of so-called “herd immunity”, the British Prime Minister made a decision to completely close for a period of three weeks, starting from March 24, with the aim of limiting the spread of the virus.

The most important repercussions of this closure on the British economy can be traced through the following points:

1- GDP and growth rate:

The United Kingdom recorded negative growth in the first quarter of this year, as the British economy contracted by 2.2%, which is higher than the initial estimate of only 2.0%, which was described by observers as the worst quarterly decline since 1979, despite seven days. Close in the first three months of 2020, but the month of March alone witnessed a contraction of 5.8% in the largest monthly decline ever, and this ^[7]quarterly contraction was the largest since the financial crisis and the weakest change in one month at all ^[8](). Almost all sectors contributed to this contraction.

According to previous forecasts of the Bank of England, GDP is expected to decline by 14% in 2020 as a whole, driven by a 25% decline in the second quarter, and that this will be the largest annual decline since 1706, according to historical BoE dat^[9]a.

The following figure shows the estimates of the growth rate of the British economy during the period

Preliminary estimates indicate that the British economy in the second quarter of 2020 is on its way to decline by 20-25%, and the British economy contracted by 19.1% in the three months to May. The contraction in growth reflects widespread negative contributions in all major sectors.

The economy grew by 1.8% in May itself, but production remained 25% below its level in February before the implementation of the lockdown measures. Preliminary forecasts for the third quarter of 2020 indicate a growth of about 8 to 10%.

Moreover, the indicators for the second quarter showed both of the following:

For the services secto^[10]r:

The services sector witnessed a decline in 11 of the 14 main service indicators in the services sector to their lowest level in 31 years, including sales, orders and cash flow. The balance of service companies that reported an increase in domestic sales decreased to a record 80 points compared to the first quarter of 2020, and is now 28 points lower than the first quarter of 2008-2009.

• The balance of service companies that reported an increase in export sales fell to a record 55 points (to -55%) and is now 42 points lower than the worst quarter of the 2008-2009 downturn.
• The balance of service companies decreased from improved sales during the next year from + 38% in the first quarter to -36% in the second quarter.
• B2C companies such as retail, entertainment and hospitality were more likely to report declines across key indicators than B2B companies.

For the manufacturing secto^[11]r:

• Nine of the 14 leading indicators measuring activity in the sector declined to an all-time low.
• The balance of manufacturing companies that reported improved domestic sales was 62 points lower than in the first quarter, and the balance of manufacturing companies whose sales improved over the next year decreased from + 34% in the first quarter to -31% in the second quarter.
• The balance of companies reporting increased domestic sales rose to -59% in the second quarter of 2020, down sharply from + 3% in the first quarter.
• The balance of companies that reported an increase in exports decreased from + 3% in the first quarter to -52% in the second quarter.
• The balance of companies that reported an improvement in cash flow decreased from -6% to -47%.
• The balance of companies expecting their prices to rise from +33 in the first quarter to + 12% in the second quarter
• The balance of companies looking to increase investment in plant and machinery fell to -42%, the lowest level on record
• The balance of companies looking to increase investment in training has dropped sharply from + 16% to -38%

2- The impact of Corona on employment in Britai^[12]n:

The most important British employment data until the last update on 17 July 2020 came as follows:

• The total number of weekly hours worked in the three months to May 2020 reached 1 million, down 175.3 million (16.7%) hours from the previous year, and the largest decline since records began in 1992.
• Vacancies decreased by 463,000 in the most recent quarter to 333,000, the largest quarterly decline in total vacancies since the current time series began in 2001.
• Average wages declined in real terms in the three months to May 2020, with an annual change of -1.3% including bonuses, and -0.2% excluding bonuses.
• 46 million people between the ages of 16 and 64 were economically inactive, 92,000 less than the previous quarter. The inactivity rate was 20.4%, up 0.2 percentage points from the previous quarter.
• Despite the stability of the unemployment rate at 3.9% over the past three months until last April, the figures based on recent tax data indicate that the number of people on the wage lists of British companies decreased by more than 612 thousand in April and May, a decrease of 2.1% compared to March, which is This is the highest rate of job shrinkage since the beginning of the crisis, and job opportunities decreased at the fastest pace since the office began its calculation in 2001, as it decreased by 342,000 to 476,000 job opportunities only.
• This shows that the stability of the British unemployment rate during the last period is largely due to the government’s job-retention program, which led to the lack of an increase in the number of people classified as unemployed, as they were unable to search for work under the closure. The unemployment rate rises to 8% in 2020, then decreases again to 7% in 2021 and 4% in 2022.
• Some workers are disproportionately affected economically by the coronavirus outbreak. Workers belonging to an ethnic group (black, Asian, and minority minority) women, young workers, low-wage workers, and workers with disabilities have been negatively affected economically from the coronavirus outbreak.
• For example, 15% of workers in the sector who have been shut down due to the coronavirus are of BAME ethnicity, compared to 12% of all workers, and 57% of women, compared to the average workforce of 48%, and about 50% are under age. 35 years. Low-paid workers are more likely to work in closed sectors and less able to work from home.

Third: British economic measures to confront the repercussions of the Corona virus:

The Corona pandemic has caused great social and economic disruption, and the United Kingdom government has taken a large and wide-ranging package of financial measures, aimed at achieving two purposes, the first of which is to help people in the short term, and to help the British economy prepare for work and grow again and quickly when restrictions are lifted. This is in addition to spending on public services that have come under pressure as a result of the COVID-19 system, such as health and social care.

Alongside this, the central bank has taken a range of measures to help ensure companies have access to low-interest loans and to ensure that the UK government bond markets continue to operate.

The most important of these packages and policies can be reviewed through the following point^[13]s:

1- Governmental packages to confront Corona:

The financial measures announced by the British government can be divided in general into two categories, one targeting businesses and the other targeting citizens, in addition to some other packages, and this can be reviewed as follows:

A- Packages destined for companies:

UK companies have witnessed a sharp decline in revenues for reasons related to either partial closure because they are temporarily closed, the disruption of their supply chains, or the decline in sales, which exposed them to major losses that threatened the continuation of activity or the retention of employment.

• The government used public expenditures to meet the costs incurred by companies, the most important of which is that the state bears the costs of holidays, as it canceled business rate payments for the period 2020/2021 to companies in England in the retail, hospitality and entertainment industries, and for nurseries.
• This expanded the scope of support that was already in place for some of these same companies even before the Corona crisis that existed in the retail sector in England with values ranging between 15,000 and 51,000 pounds, and most of these companies were entitled to a 50% discount in the previous year 2019. / 2020.
• The Scottish and Welsh governments have also canceled holiday payments in 2020/2021 to companies in the retail, hospitality and entertainment industries. Northern Ireland has announced a three-month holiday for all businesses of non-domestic rates (equivalent to business rates).
• The government provides cash grants to some companies, some of which target specific industries. The government provides cash grants of £ 25,000 to companies in the retail, hospitality and entertainment sectors, with an estimated amount ranging between £ 15,000 and £ 51,000. Equivalent scholarships will also be awarded by the Scottish and Welsh governments.
• Firms operating in low-value real estate benefit from reduced Small Business Leave Pay (SBRR), no matter what type of business they do.
• Projects valued under £ 12,000 do not pay vacation fees at all, while those valued between £ 12,000 and £ 15,000 receive a discount. All companies eligible for SBRR will also receive a cash grant of £ 10,000.
• A £ 10,000 grant will also be paid to all eligible Rural Relief businesses, which covers low-value real estate in sparsely populated areas. Equivalent scholarships will also be awarded by the Scottish and Welsh governments.
• The government announced a three-month plan to provide up to £ 9 million in grants to the fishing industry and an additional £ 1 million to help fishers find alternative local markets for their catch.
• Fishermen will be eligible for the grant if they operate boats less than 24 meters in length and have recorded sales of £ 10,000 or more in 2019. Companies that grow fish and shellfish will also qualify.

Sick leave with statutory pay:

• Typically, all employees who are paid in excess of £ 118 per week from the fourth consecutive day of illness and for up to 28 weeks must provide statutory sick pay (SSP). SSP is paid at the rate of £ 94.25 per week.
• In accordance with the new packages, the government will compensate small and medium-sized enterprises (SMEs; those with fewer than 250 employees) for up to 14 days of sick pay related to COVID-19 per employee from the first day of absence.
• This includes periods when an employee is out of work due to self-isolation, even if he is not ill. That’s up to £ 188.50 per affected employee for eligible employers.

Staff wages

• On March 20, the government announced a new job retention plan, with the aim of encouraging employers to keep workers and pay their salaries even when work is suspended. Under this plan, the government will pay companies up to 80% of the salary costs for workers who have been paid (including wages and NIC cards for owners. Employment and retirement contributions required by the government’s self-registration policy), up to a maximum of 2,500 pounds per month per worke^[14]r.
• This scheme was initially implemented for a period of three months, but was extended until the end of next October. Employers will be required to pay national insurance and retirement contributions in August, 10% of wages in September and 20% of wages in October.
• The program will also allow employees to return to work part-time from July 1, with the government continuing to pay workers some wages for the remaining lost hours. This scheme also covers thousands of other workers who were hired between February 28 to March 19.
• The Federal Budget Office estimates that the scheme will cost a net 56 billion pounds (minus the money the government receives immediately in the form of taxes) through the planned end of the plan in October.

Postponement of payment of taxes

• VAT payments that were due to be made in March 2020 (estimated at around £ 30 billion) have been postponed until the end of June, giving companies more time to pay the tax bill.
• Businesses and cash-strapped freelancers may also be eligible for support through HMRC’s Time to Pay program. This gives taxpayers who struggle longer to pay the tax bills. It’s time to pay is an existing service but HMRC is increasing its resources to handle the expected high volume of requests.

Low Interest Loans – The COVID-19 Corporate Funding System (CCFF)

• The government supports large (non-financial) companies by purchasing short-term, unsecured corporate debt (known as “commercial paper”). Effectively this means offering short-term loans so companies can have easy access to cash. The CCFF will provide financing at a rate “comparable to that prevailing in the markets in the run-up to the COVID-19 economic shock.”
• The Bank of England (BoE) acts as an agent of the Treasury to implement this scheme, and these purchases will be paid for by printing money.
• Companies will be eligible if they make a “material contribution to the UK economy”. This includes all UK listed companies with business activity, including companies with foreign parent companies.
• This also includes companies that have a large business or are headquartered in the UK, and possibly also those who serve a large number of clients, or who have a number of operating locations in the UK.
• The plan will work “for at least 12 months and as long as steps are needed to alleviate the cash flow pressure on companies.” The Bank of England will provide a six-month notice to withdraw the CCFF. The government will require companies receiving CCFF funding not to pay dividends, and to limit large wages and cash bonuses.

Coronavirus Disruptive Loan Program (CBILS)

• The government is working to facilitate access for small and medium enterprises to low-cost loans. The government will guarantee 80% of the value of loans provided to small and medium-sized enterprises through the British Business Bank (BBB) – a public sector body that invests private sector funds (from a group of partners that mainly include banks) in small and medium enterprises.
• The loans will be worth £ 5m, and the government will also pay interest for the first 12 months. This scheme is available for companies with annual turnover of up to £ 45 million.
• In the event of a business failure, the government will pay 80% of the outstanding loan. The scheme is designed to reduce the risk to lenders, and thus to encourage them to lend more.

Refunded securities program (which the debtor refuses to pay):

• This program was introduced on April 27th to address the deficiencies of the Business Interruption Loan Scheme. It targets small businesses that are struggling to obtain loans through CBILS.
• The refundable loan scheme introduces a streamlined two-page application process and a 100% government guarantee on the debt. It aims to increase the willingness of banks to grant loans, as they will not lose any money if companies default. Loans amount to 25% of annual turnover, with a maximum of £ 50,000. The government will bear the interest for the first year.

Coronavirus Big Business Stop Loan Program (CLBILS)

• The government announced a program to provide loans to companies that are too old to qualify for the Business Interruption Loan Program, for which the CCFF was not a viable or attractive option.
• The government guarantees 80% of loans worth up to 25 million pounds for companies with turnover of more than 45 million pounds and up to 200 million pounds (originally 50 million pounds) for companies with more than 250 million pounds in sales.
• The loans are covered by 25% of the turnover. The loans will be provided through the British Business Bank. Unlike the small business scheme, the government will not cover interest payments for the first 12 months. As with the CCFF, companies receiving loans greater than £ 50m in terms of dividends, share buybacks and higher wages will be tied up.

Future Fund

• The government is also providing loans between £ 125,000 and £ 5 million to UK-based companies, to match the funding raised from private investors.
• To qualify, companies must have previously raised – in the last five years – at least £ 250,000 in equity investments from third parties.
• The fund is designed to help those companies – particularly startups – that do not usually qualify for bank loans and rely instead on investing in stocks. These loans will be issued by UK Business Bank and will be convertible – meaning the loan will be converted into equity in the company’s next eligible financing round.
• The government has also awarded an additional £ 550 million to Innovate UK, the public body responsible for increasing innovation, to distribute to small and medium-sized companies that rely on research and development. This will come in the form of grants and loans, with grant support of £ 110m and £ 210m for existing Innovate UK customers who have already been announced. There has not yet been an allocation of 200 million pounds or so.

Trade credit insurance

On 4 June, the government announced a new scheme to guarantee up to £ 10 billion in transactions through a new Trade Credit Reinsurance Scheme. Trade credit insurance protects companies against default by the companies they sell goods to. In return, participating insurers must forgo profits and bonuses for senior employees related to commercial credit insurance.

Support other business

The Coronavirus Emergency Law also includes measures to prevent commercial tenants from being evicted if they default on their rent between March and June.

B- Citizen Support:

The government announced a set of measures that directly target individuals, along with programs aimed at ensuring that people do not lose their jobs. Among these procedures are the following:

Support for the self-employed:

• For the self-employed, they can earn 80% of their average monthly earnings over the past three years (or shorter if they have not been in circulation for a long time) up to a maximum of £ 2,500 a month for the first phase of the program, until the end of May. In the second phase of the scheme, which covers the three-month period to the end of August, they will be able to claim 70% of their earnings as a lump sum, up to a maximum of £ 6,570.
• Self-employed persons are eligible if they have submitted a tax return for the 2018/19 tax year – they earn more than half of their income from self-employment, provided their earnings are less than 50,000 pounds in 2018/2019, or on average between 2016/2017. And 2018/2019.
• Those who meet the conditions can receive the grant even if they continue to trade and it does not apply only to those most affected by the crisis.
• Self-employed persons can apply for the first plan until July 13, and they can apply for the second plan without applying for the first plan.
• Payments will be deferred to the beginning of March for the first scheme, and the beginning of June for the second phase. While waiting for the plan to be paid, these companies can apply for loans under CBILS or individuals in low-income households can apply for universal credit.

Patient benefits:

• For people who are entitled to statutory sick pay (SSP), and for employees with high enough earnings to request SSP from the fourth day of any illness, but the rules have been amended so that anyone who has to take time off work due to COVID-19 will be Eligible for SSP from the first day of absence. This applies to anyone who must take time off due to COVID-19, whether through illness or self-isolation.
• SSP is around £ 94.25 per week for up to 28 weeks.
• The government has also announced that the NHS 111 service will now be able to issue sick notes confirming that someone is self-isolating due to COVID-19, rather than people having to obtain it from their GP.
• People not entitled to statutory sick pay, low-income people (those whose income is less than £ 118) and self-employed are not eligible for SSP. This group is usually able to claim Work and Support Allowance (ESA) if they are unable to work due to illness. However, this is usually only available from the eighth day of illness.
• The government announced that this will also be available from the first day of those affected by COVID-19, with an ESA of £ 10 a week for the first 13 weeks.

Additional support for people with low incomes or without work

The government announced several changes to benefits for low-income people without a job to help support their incomes over the next year.

Comprehensive credit:

• The overall credit payments will be increased by £ 1,000 a year for the next 12 months (with the same increase applied to the tax credits base).
• For the self-employed, the “minimum income” (MIF) of universal credit will stop applying as long as the disease continues.
• The MIF usually means that self-employed people are assumed to earn what they earn in a full-time job that pays the minimum wage, even if their income is lower than that. The removal of the MIF means that the self-employed will be entitled to an income from comprehensive credit equal to the income from the SSP that the employees receive.

Housing benefit

The government also provides support to meet rental payments to those receiving housing benefit, by increasing the housing allowance. Tenants receiving a housing benefit will now receive an amount sufficient to cover the cheapest 30% of the properties in their area.

Another support

• The government has allocated £ 500 million to a hardship fund, which local authorities will use to support vulnerable people, in the form of reductions in the amount of council tax owed by people.
• People who pay taxes mainly through self-assessment and are not self-employed will also be given an additional six months to make their subsequent self-assessment income tax payments. Subsequent payments, which were due at the end of July 2020, will be postponed to the end of January 2021.
• The government and the Financial Conduct Authority have encouraged mortgage lenders to offer paid vacations to people in financial distress due to COVID-19.
• The government encouraged landlords to do the same for tenants.
• The draft anti-Coronavirus emergency includes a provision to give tenants a three-month grace period before evacuating them, and on May 22, the government announced an extension of the grace period for another three months for struggling homeowners.

C- Supporting public services:

The government has increased spending on public services that have come under pressure as a result of the COVID-19 system, such as health and social care, by establishing the Coronavirus Emergency Response Fund.

• The government has set up the Emergency Response Fund to provide additional funding for public services that respond to the coronavirus crisis, for which an initial sum of £ 5 billion has been allocated, and on April 13, the Public Treasury announced that a total of £ 14.5 billion has been allocated. More than £ 12 billion will be spent on England, while the delegated governments of Scotland, Wales and Northern Ireland will spend the rest.
• More than half of the total fund (£ 6.6 billion) has been earmarked directly for health services, including additional funds for ventilators, protective equipment and assistance in recruiting retired medical personnel or interns to work. A portion of that money (£ 2.9 billion) has also been allocated to hospital discharges and local care.
• The fund provides additional support to local authorities (£ 1.6 billion) and financing to deliver food packages to vulnerable people in isolation (£ 0.9 billion). Moreover, £ 3.5 billion has been set aside to cover the cost of losses to railway providers as they continue to operate essential services so that essential workers can travel to work.
• VAT exemption for personal protective equipment, as the government announced that all essential personal protective equipment (PPE) items for COVID-19 will be exempt from VAT for a period of three months. This is expected to provide care homes, charities and businesses (and cost the Treasury) around £ 100m.

D- Funding charitable societies:

The government has announced £ 750 million in public spending on charities. The money will go to “front-line” charities such as hospitals and agencies that provide food for the vulnerable. This scheme is designed to support national efforts to deal with the virus and the effects of the lockdown, rather than to protect the entry of charities in general.

2- Monetary procedures (from Central England)

Unlike the previously mentioned measures within government programs related to providing loans to businesses and individuals, the UK Central Bank’s support for measures to combat COVID-19 came mainly by ensuring that markets – including lending markets – continue to operate smoothly.  The most important of these decisions can be traced through the following points:

Low Interest Loan Guarantee Available:

interest rates

• The Bank of England benchmark rate was reduced from 0.75% to 0.25% on March 11th, and then to 0.1% on March 1^[15]9. This reduces borrowing costs for companies and households.

Temporary Finance Scheme with Additional Incentives for Small and Medium Enterprises (TFSME)

• To help ensure that the low interest rate fuels corporate lending, the Bank of England has also announced a new plan to offer banks four-year financing at or very close to the benchmark interest rate (ie 0.1%). This will provide banks with a cost-effective source of financing, isolated from any adverse conditions in the bank financing markets.
• Banks will be able to borrow up to 10% of the amount they lend to businesses, and additional financing will be available for banks that increase lending, especially for small and medium businesses. When this scheme was first announced on March 11th (then banks would be allowed to borrow up to 5% of net lending), the scheme was expected to provide “in excess of £ 100 billion” in financing to the banks.

Indulgence support measures

• Through these measures, the government and the Financial Conduct Authority are encouraging banks and building societies to be lenient with borrowers, to help them do so.
• Among these measures, the Bank of England has lifted some of the regulatory burdens, and the annual stress test of the eight major UK banks and building societies for 2020 has been canceled. The amount of money that banks would have to hold to mitigate any losses they might incur on loans (known as capital reserve) has been reduced from 1% of the bank’s outstanding lending to 0%. This was a big step ahead of the COVID-19 measures, and was set to rise to 2%, in December 2020.
• The Bank of England estimates that this will increase the lending capacity of banks in the United Kingdom by up to 190 billion pounds.

Government bonds

• With the economic effects of COVID-19 emerging, conditions in the UK government bond market deteriorated, and in response, the Bank of England’s Monetary Policy Committee unanimously voted to extend the Asset Purchase Facility (APF), through which the Bank of England holds government and corporate bonds in the kingdom. By 200 billion pounds, bringing it to a total of 645 billion pounds. This was funded by printing money.
• Most of this additional money will be used to buy UK government bonds – that is, debt issued by the UK government – and the remainder will be used to buy corporate bonds (i.e. debt issued by companies).

3- Notes on British economic measures to confront the repercussions of the Corona virus:

After reviewing the economic packages with which Britain faced the repercussions of the Corona virus, it can be said in general the following:

• These packages are characterized by their comprehensiveness, in terms of extensive use of the financial and monetary policies, and their various tools, especially public spending and tax exemptions, in addition to interest rates, printing money and cash reserves, offering bonds and discounting commercial papers.
• These packages are also characterized as general, as they target all strata of society through their measures directed at individuals, in addition to targeting companies of all sizes, in addition to targeting civil society organizations, with a focus on institutions working in the health field.
• The comprehensiveness and generalization of the economic packages to confront Corona, especially the government spending policies, are an extension of pre-Corona policies, in which the government tried to confront the repercussions of leaving the European Union.
• The government expanded its policy of issuing government bonds until it reached 645 billion pounds sterling, and the government announced in precise detail the different aspects of this amount, in addition to the cost of each package, its goal, the beneficiaries of it, and the conditions for benefiting, and this shows the depth of the technical studies that preceded the determination of those packages, and participation It is widely prepared, especially by the beneficiaries or their representatives.
• Fears of the second wave of the spread of the virus remain, and despite this, the government has not postponed the successive announcement of the packages in its various forms, and this indicates not only the government’s support for citizens and companies to cross the ordeal, but also its intention to support more whenever required.
• The balance between the packages directed to companies, individuals, civil society institutions, and individuals who work for their own account, in addition to the bold government decision to bear 80% of the salaries, will inevitably reduce the negative effects of the pandemic on the entry of citizens, and this will work to the continuation of the flow of domestic consumer spending, which will work later On the continued rotation of the productive wheel, in addition to the general government guarantee that citizens will not fall under the poverty and unemployment pandemic.
• The government’s increasing reliance on financial policies with its various tools indicates the importance of the state’s economic role from the British point of view, especially in the stage of crises, as this growing economic role of the British state began after Brexit, and it increased in depth and size in the face of Corona.
• The Bank of England plays a major role in bundling the crisis, but it did not appear as the main player in the economic confrontation of the crisis, and its role can be described as complementary to financial policies, and its servant, and perhaps after a longer period of time has passed, results will appear that show a reduction in the role of monetary policies, in violation of its sovereignty in analysis and policies Economic in the recent period.
• For the first time, the monetary policy shows printing money as one of the tools that will be used to provide the necessary liquidity to finance the discount of commercial paper for companies, and what can be expected of more reliance on the policy of printing money, especially in the event of a second wave more fierce from the outbreak of the virus.
• The British coordination mechanisms with the European Union countries appeared timidly in coordinating some monetary policies from the British Central Bank with the central banks of some European countries, although this may be attributed to Britain’s exit from the Union, but the weakness of coordination with other countries may indicate a regressive future policy. It aims to reduce globalization and more self-reliance, or perhaps it indicates upcoming changes in the maps of wealth, production and influence.

Margin