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Lengthy lockdown 'unrealistic', says former Bank of England governor

Larry Elliott Economics editor

Mervyn King, the governor of the Bank of England at the time of the 2008 global financial crisis, has warned that an indefinite Covid-19 lockdown is unrealistic and ministers need to work on an exit strategy.

Lord King said he understood the reasons for quarantining most of the population, but that there would be a backlash if the restrictions were kept in place for too long.

Speaking at a webinar organised by the Policy Exchange thinktank, King said: “The idea that you can have a lockdown that goes on for months on end is unrealistic. The government needs an exit strategy, which may be gradual and initially involve those who have had the virus and are able to travel and go back to work. If we have a lockdown for too long there will be a rebellion against it.”

King said it was pointless to speculate on the extent of the health and economic damage caused by the crisis, but emphasised that there would be significant costs in terms of failed businesses, lost jobs and increased unhappiness.

“It is understandable that health officials focus on the broad-brush aspect of this – the need for a lockdown to diminish the spread of the virus,” he said.

Income subsidies


Direct cash grants for self-employed people, worth 80% of average profits, up to £2,500 a month. There are similar wage subsidies for employees.


Loan guarantees for business


Government to back £330bn of loans to support businesses through a Bank of England scheme for big firms. There are loans of up to £5m with no interest for six months for smaller companies.


Business rates


Taxes levied on commercial premises will be abolished this year for all retailers, leisure outlets and hospitality sector firms.


Cash grants


Britain’s smallest 700,000 businesses eligible for cash grants of £10,000. Small retailers, leisure and hospitality firms can get bigger grants of £25,000.


Benefits


Government to increase value of universal credit and tax credits by £1,000 a year, as well as widening eligibility for these benefits.


Sick pay


Statutory sick pay to be made available from day one, rather than day four, of absence from work, although ministers have been criticised for not increasing the level of sick pay above £94.25 a week. Small firms can claim for state refunds on sick pay bills.


Other


Local authorities to get a £500m hardship fund to provide people with council tax payment relief.

Mortgage and rental holidays available for up to three months.


But the former Bank governor said it was also important to think about the mental health of people being made unemployed, or whose businesses were going bust.

“There are people struggling to get out to buy food and who are stuck on their own. Young people are having their university education and school exams cancelled, and that it is going to have a significant impact of their wellbeing and future careers.”

King added the government had made a deliberate decision to lock down the economy and so had a responsibility to ensure cash flow to businesses big and small, and to act as the customer of last resort.

The Treasury needed to speed up its plan to offer financial help to the self-employed because the target date of early June would be too late for many, he said.

Alistair Darling, the chancellor responsible for bailing out stricken banks at the beginning of the 2008 crisis, said the government was failing to provide a consistent message on testing for Covid-19.

“It is critical in any crisis that the message has clarity”, Darling said. “At the moment we don’t know whether the government is going beyond NHS staff to the public as a whole. Unless we know who has got it or who has had it, we are always going to be on the back foot.”

Darling also said the chancellor, Rishi Sunak, needed to make sure measures were having an impact where they were needed.

“It is very easy to announce a policy, but much more difficult to get it delivered. The economic measures are absolutely vital, but for the self-employed delivery is going to take longer than people have got in many cases.”