The Government is going about supporting the economy in the wrong way. A hodgepodge of support on business rates for some businesses, and supporting some staff on mortgages and maybe rent if they get laid off is confusing and not thought through and the administration of this is a nightmare.
The key problem for the economy is that businesses have been interrupted and will remain so for a period of months, indeterminable at this stage. There is no way most businesses in the hospitality or leisure sector can take advantage of the loan offered by Rishi Sunak as they are not in a position to make a profit for a number of months at least to be able to pay back the loan at a later date. It makes more sense for them to liquidate the business, sack all their staff and not pay their suppliers, or indeed the taxman who is often the largest creditor. Such a response will set off a domino chain which could be devastating for the economy. We know from our own experience that this is what is starting to happen now. Helping the staff of those businesses with mortgages does not help the business survive and thus the future of the jobs.
In normal circumstances when a business has an interruption it claims on its insurance and that way the business has the confidence to be able to continue. It is a disgrace that the insurance industry is washing its hands of this interruption now and the Government needs to put pressure on the industry to step up. But in the meantime the government must itself become ‘insurer of last resort’. It did something similar with terrorism cover in 1993 after the bombing of the Baltic Exchange in London when it set up “Pool Re” and more recently with Flood Re in 2016 as the insurance industry were failing to cover for losses then. It worked with the insurers to ensure businesses were fully supported.
What the Government needs to do now URGENTLY is set up a “COVID Business Interruption Fund” which allows businesses to claim on a monthly basis for losses incurred and it should pay out with a very short turnaround ie. days, not weeks, without the convoluted investigations typically made by insurers. Companies could submit their last set of audited accounts to show what their gross margins are and the losses and the Government should reimburse right away. The process should be simple. Once the coronavirus subsides businesses can later be audited to ensure the claims were fair and reasonable. Perhaps the insurance industry could supply the personnel to do these checks after the event.
By stepping up in this way, there is absolutely no reason why any business should go bust or lay off staff as their gross margins would be protected. The Government would NOT need to pay people’s mortgages or give rates relief (although the latter is needed anyway aside from COVID19). A chain of bankruptcies could be halted and we could remove the business panic which is gripping the economy. Businesses would be able to continue and whilst not actually trading perhaps get on with some of the tasks set aside for quiet periods, like repairs and maintenance.
Furthermore by acting as I have suggested, the Government will only have to deal with thousands of business affected rather than potentially millions of smaller claims, so the management of the process will be much simpler.
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