Speaking for England

During the crisis so far the EU has battled to keep its belief in open borders as law around the EU. The member states have taken a different attitude.

The EU says “A crisis without borders cannot be resolved by putting  barriers between us”. It has despite this allowed or encouraged tougher border controls around the EU as a whole whilst wanting to avoid all controls at borders between member states.

Instead Germany has imposed border checks against Austria, France, Luxembourg and Denmark for the movement of people. France has imposed checks on Germany, Belgium and Spain.

In the UK there have been criticisms that the government did not impose stricter controls on people entering through our airports and ports. I currently get complaints  that there are still lots of planes flying into Heathrow. I have to explain that some are planes bringing UK nationals home from holidays and stays abroad, and many are freight planes. Some are passenger planes that have been adapted to carry more freight. Passenger services have traditionally also carried some freight in holds as part of our complex supply system.

The EU, realising that countries do wish to impose checks on people at their national borders, is now trying to protect the idea of a barrier free single market for goods.  They state “All internal borders should stay open for freight”. Regardless of  this some member states are diverting export goods for home consumption and inserting their own rules. France and Germany for example are keeping various medical supplies for home use.

This crisis is putting the world trading system under new pressures. In a world of lock down there is more attention to the local and national. Countries are seeking to increase their own productive potential in shortage areas like tests, protective clothing and other medical supplies.

I am writing to update you on the virus crisis, and the  damage to jobs, incomes and lifestyles   that the virus response is causing.

The government has taken advice from epidemiologists, based on worldwide work through the World Health Organisation. This work concludes that because there is no current cure nor vaccine to prevent the spread of Covid 19, and  because people with severe versions of the illness die, tough action has to be taken to slow or stop the spread of the disease. As it appears to be easily caught, this requires as much separation between people as possible.

The UK has adopted a range of measures similar to those in Italy, Spain, France and Germany who also have bad attacks. The measures are a  bit less severe than those adopted in China, which claims to have tamed the virus, but more severe than the Swedish approach. The USA seems to be moving to join us with more severe measures as it spreads rapidly there.

I have constantly pointed out to the government that closing down more than  a third of the economy for an unspecified period will put many people out of work, bankrupt many businesses and create hardship for people who lose their income. I suggested a number of measures to offset some of this damage. I am pleased to report that the government has announced a scheme to enable companies to furlough their staff, keep them on the payroll when  not working, with the government paying 80% of the cost for the period of shutdown up to an individual  pay ceiling. It has announced a similar scheme for many self employed people. It has also offered state guarantees for commercial banks to lend to keep companies with much reduced turnover going through the difficult period.

I welcome this big response, but do not think it goes far enough. I am trying to persuade the government to underwrite more jobs and incomes, and to make the payments earlier. Only if we keep company workforces in being can we be ready for recovery as soon as the restrictions are lifted.

I am also about to tackle the government on the all important timing of exit from these emergency measures. I understand cautious advisers wanting to stamp out the disease want maximum isolation for the maximum number of people for as long as possible. They are worried that if we lift the bans early with numbers ill falling there could be a second wave. The government, however, has to balance this risk against the undoubted substantial extra damage to jobs and incomes if we keep the closures in  being for too long.

As capacity builds in  the NHS to handle high numbers with pneumonia like symptoms, and as more people get the mild  version of the illness and gain some immunity, so it should  become easier to relax the tough economic sanctions against normal business activity. We clearly need to keep in place strict safeguarding measures for the ill and vulnerable whilst medical research works on treatments and vaccinations.

I am also conscious of continuing shortfalls in on line food delivery services, where I have proposed measures to harness volunteers and use delivery services from companies previously supplying non essential items. There is plenty of food but still problems with switching items like eggs from large catering packs to retail packs, leading to some empty shelves. Again I have proposed some measures to deal with this backlog.

I hope you and yours are keeping well and are managing in these difficult circumstances. I would like to say a big thank you to all of you who are going to work to maintain our essential services, ensure there is food for our tables, and to care for others. I am working from my home in Wokingham Borough, and doing as much as possible of my job on the phone and on line.

Yours sincerely

John Redwood

Today I joined the MP call to the Cabinet office to provide feedback on virus related problems. One of the issues I raised was the continued empty shelf problem for a few products. I took the case of eggs as an example.

There are still the same number of eggs being produced as before the clampdown came into effect. Apparently there are plenty of eggs, but a large number are available in catering packs which are far too big to sell in supermarkets. According to the BBC  Radio 4 Farming  programme big caterers are more than  happy to transfer their egg contracts temporarily to the supermarkets, but the eggs need to be packed in retail packs. There are few manufacturers of the egg  boxes, with a main producer in Denmark said to be closed for virus reasons.

I suggested the Cabinet Office/DEFRA  help the private sector come up with a solution to a shortage of retail egg packs. UK packaging firms may be able to respond to the need quickly. Retailers might be able to buy in the catering packs and let people buy loose eggs, as we buy loose vegetables, for those who keep their last egg box and take it back to refill. That would take some pressure off.

There are a few other lines in common short supply where there can be fixes.

I am also sending these thoughts to DEFRA, as filling all the shelves again would reassure the public and remind people who are thinking of hoarding they have no need to hoard.

Yesterday I sent the letter beneath to the Chancellor:

Dear Rishi

Thank you for developing and announcing a scheme to ensure many people currently self employed will receive an income top up from the state during a period when many of them are not allowed to work or are experiencing a big decline in  activity over the virus restrictions. I am pleased you settled on ensuring 80% of past income up to a ceiling. 

There are, however, some people in need that your scheme does not help at all. Will you please ensure that someone who has set up a self employed business more recently and who depends on that income is also covered? They should be paid on the basis of what they were earning on average per month in the period after start up, if the start up was before the beginning of 2020 and the start of the virus.

 There are self-employed people who run their own small companies and paid themselves in dividends. Where they do not have other material accessible  assets and are clearly living on the income from their self employment, they too should be able to claim assistance.

 I understand your concern to avoid fraud. In these cases I suggest self certification in the claim, to be followed later after the immediate crisis by HMRC random sample testing of the sound basis of  claims and of course follow up by HMRC in specific cases where fraud is suspected. HMRC should be able to impose tough penalties and to publish fraudulent conduct as a further penalty for the few cases where crooks abuse the system.

Yesterday’s scheme is also delaying payments until June. Many self-employed people on modest earnings do not have large cash buffers waiting to pay all their family bills for three months. One of the main reasons given for the delay was the need to allow more self-employed people to submit tax returns. It seems unfair on the large majority who have done so to hold everyone up for this, so why not get on with dealing  with all of those who have filed and give them earlier payments.

 I do not agree with you about the possible need to tax the self employed more when this is over. Self-employed do not get the same benefits as employed. Giving them a scheme now for these quite unprecedented and we hope not to be repeated circumstances does not equalise their treatment generally. At a time when we wish to care for people being put through extreme financial distress by government actions taken on health grounds, they as taxpayers have as much right to help as anyone else.

Your general statement of aims and your understanding of the importance of the self employed was great. Please persuade your officials to make the scheme friendlier to the sector as a whole which serves us well and will be needed again soon.

Yours

John

Many self employed are worried that their business has dried up, removing their income. Many small companies are concerned that they have been closed down temporarily for an unspecified time period but still have to pay rent, other overheads and employees pay. They welcomed the government pledge to pay 80% of the wage bill up to a ceiling, but still have to wait for the scheme to deliver them some cash.

So what do they do? They will turn to the banks. On Wednesday the Chancellor and Governor of the Bank of England wrote to all the banks, reminding them of the  various schemes set out to allow more lending to business. They told them to “take all action necessary to ensure the benefits of these measures outlined above are passed through to business and consumers”.

That’s fine advice,  but the banks have to operate within the rules of the schemes and within the confines of the Regulatory system that governs them. As the lending to  business schemes offer a government guarantee of 80% of the loan, the banks still need to take care with the 20% they could lose. As the scheme says the banks need to reclaim personal guarantees and cash in collateral assets before claiming losses under the scheme, banks will obviously feel the need to apply some  criteria about collateral and future cashflow projections when making the loans.

There will be difficult judgements for banks to make. How much of a business case can they expect from a company that has lost all its turnover and does not know when it will trade again? How much of a personal guarantee or pledged asset can they require, when this lending is for an extraordinary purpose, a temporary collapse of revenue, which is not about to be reinstated but will be permanently lost?

Banks still have to keep capital buffers and ensure the future solvency of their businesses, so have to keep an eye on the possible loss rate on this type of lending. Meanwhile the companies suffering from the shock of no money coming in are not that keen on a loan as they wish to avoid becoming heavily indebted for past losses that cannot be easily replaced.

The self employed need the money they would be earning to pay their domestic bills as well as meet their business commitments. The scheme outlined yesterday helps a bit, but leaves higher earners very short of cash though they may well have commitments commensurate with their normal earnings level. All this points to one inescapable conclusion. If this cessation of activity continues for too long there will  be a lot of lost businesses and considerable longer term economic damage. In the short term the government has not done enough to avoid redundancies and the loss of some small businesses.

MPs and the government are flooded with calls wanting detailed answers to how people can live their lives under the new rules laid out in Parliament this week. This is understandable given the magnitude of the changes required.

The rules themselves are fairly general and broad. The aim of cutting back sharply on person to person contact  is very clear. People should stay at home unless they need to go out  to carry out important work that cannot be done from home, or to collect food and  medicines or to undergo health care. There are  not always detailed answers to what this means for any individual’s life and circumstances.  People are allowed to go out, and need to exercise their judgement of whether this should  be done . If so they should do it in a way which minimises risks to themselves and others.

The police now have powers to require people to return home where they do  not have a good reason, and to fine for  non compliance. The police are keen to carry out their duties by consent, and would like us all to seek to implement the spirit of the rules without needing a strict fine and compliance approach by them. When I am asked difficult questions about what individuals should do I advise them to apply commonsense, to think whether the neighbours would agree they have a need to be out and about.

There are issues about what constitutes a family, what living together as a family means, and what to do about family members who have been travelling and staying away from home for a period. Many of these matters are judgements, where in a  free society we look to the adults in the community to come to sensible decision for themselves in the light of the threat and the general requirements of society. The government does not have ready made answers to all the detailed questions because it has never drawn up a blueprint to tell everyone where they have to live, whether they may travel and whose work is essential. It sought to get people to make a big reduction in personal contact by advice, and has had to move to legal requirements as a large number of people ignored the advice. Let us hope now people respond well, to avoid the need for a tougher approach to policing and punishing offenders.

Meanwhile I have  renewed my proposals to

1. Get income into the hands of the self employed who cannot now work
2. Get more home deliveries scheduled by food shops
3. Have  more national and local government support for volunteering to help those in need of assistance thanks to their need to self isolate for 12 weeks.
4. Get faster and more helpful assistance with the employee cost scheme and the loan schemes for busienss.

The health policy says close more things down and stop people getting about unless it is essential to the NHS, basic utilities  and  the food supply that they do so. Keep them closed until the disease is tamed enough.  The economic policy says close less down, re-open as quickly as possible, try to limit the economic damage.

Judging when to lift the new restrictions becomes the crucial decision. Do it too soon and the disease presumably leaps up again. Leave it too long and big swathes of the UK private sector will be excessively debt ridden or bankrupt.

So it would be good to have a bit more explanation from the epidemiologists how accurate their models are and when they judge it might be safe to reverse these measures. Learning from overseas countries ahead of us on the upwards curve of this disease is a good idea, but we need to understand the different bases of their figures and the big imperfections in them.

Some countries concentrate on testing after death. This can give a high death rate, as many people who  get the disease and recover are never tested and counted, whilst many people who may die of something else can have death attributed to the virus they were carrying. There may also be false positives in the tests.

Some countries concentrate on testing those who declare symptoms, who mainly go on to recover. This may well produce a lower death rate, though the figures may still be way out as many people with symptoms or with the mild  version of the disease may never report or seek a test. Some countries test key workers and patients at risk, yet another different set of figures.

It  would be good to see test results based on a proper sample of the population to know how many already have it, compared to full testing on all those who have died from symptoms like the virus.  It is still a medical judgement if the virus killed them. It will also be better when the new test to find those who have recovered from it and now have antibodies against it is available.

In the meantime government faces a difficult dilemma. Which of the many reports of various death rates and rates of new infection does it  believe or does it think we are most likely to follow? At what point would it be safe to reverse these measures?  When will we have in place sufficient tests to make the numbers more reliable than many of  those from around the world using selective testing? People’s lives depend on these numbers . Millions of people’s livelihoods also depend on them, so they better be available soon and they better be reasonably accurate. The only justification for the economic  misery is that the measures save lives. Giving businesses a better idea of how long it may take would also assist their plans and their financings.

There is plenty of food but still some problems getting enough into shops. There is a shortage of home delivery capacity for the elderly and ill needing that.

I have put the issue to Ministers again and asked that they broker further talks between the catering and supermarket companies over diverting food from catering packs to retail packs, and possible use of catering delivery assets and drivers to shift more for supermarkets. The government should suspend competition rules to allow collaboration.

Now most non food shops are closing the government could also ask the logistics companies shifting non foods to shops to see what they could do to boost food deliveries, and to see if some of the home delivery capacity of non foods could be used for foods.

I am going to submit my scheme to help the self employed to the Treasury again, as we have still not had an announcement from them.

The epidemiologists advising the government have succeeded in  persuading them to lock down as much of the country as possible. The aim is to stop the spread, and so reduce the numbers needing hospital treatment. The earlier policy of trace and isolate did not prevent escalation, though it may have slowed the progress of the disease as the advisers hoped.

Given this, the best outcome now must be a severe but short lived clampdown with a resulting drop in numbers getting the disease, followed by some relaxations to get more people back into work.  The worst outcome would be little progress with getting numbers down and a decision to carry on with many closures in the hope that the policy will sometime start to work as planned. A middle course is likely with a longer period of clampdown and some success with braking the rate of increase.

What does this do to the economy? More than 40% of it, the private sector not involved in food and food retail , pharmaceuticals, utilities and other basics will take a big hit. The obvious sectors that have been closed down will lose all their revenue, but it is likely new cars, new homes, discretionary purchases will all be cut back, some severely. We will see falls in output and incomes of a magnitude we have never seen before in a recession. They have come on us suddenly.

If the government aid for companies is administered well and promptly, and extended to the self employed, then many businesses will survive and be available to supply and serve us again as soon as restrictions are lifted. If the banks use the government guarantees well and make some of the ample liquidity to them available as affordable loans, that too will help see many more companies through the low or no turnover phase.

It is going to  be much easier for companies to revive and bounce back if the gap is not too long. More visibility on timetables would be helpful to those deciding whether their business can battle on and on how much they need to borrow to bridge the gap.

The government should give us scenarios based on better control of the virus to give some hope that these restrictions are temporary.  They can say that the short term closure model is more likely if we all co-operate and observe as much social distancing and isolation as our roles allow.

As of today we face the loss of a large number of self employed businesses without more financial support, and even  the loss of businesses  covered by the financial support scheme announced who nonetheless are losing so much  business from virus related effects and have large non employee costs..

It is nonetheless the case that the UK economy will lose a lot of  output from March onwards and that cannot return until the bans are lifted. Jobs will also be lost if the government financial support is not readily available at scale. The longer the closures and bans continue, the more businesses will give up and make their staff redundant to stop the losses.

Commercial rents will fall, dividends will be cut, pension funds will have much bigger deficits and businesses in trouble will have problems raising capital. There will be large falls in investment.

This is now happening all over the advanced world where similar policies are  being followed. I wish the experts and governments every success in limiting this disease . They also need to  recognise that the serious economic damage being done to try to arrest the progress of the disease is going to get very severe unless there is a relatively short time limit on the shut downs and financial help for all in the meantime.