Britain’s economy faces a “wartime situation” and the government must not be “squeamish about one-off additions to public sector debt,” the head of Britain’s fiscal watchdog has said.
Robert Chote, head of the Office for Budget Responsibility (OBR), told MPs that a big fiscal package to support the UK’s businesses and households would be “money well spent”.
Chote’s appearance before the Treasury Committee came amid growing calls for the government to do more to support firms and workers in what looks set to be the worst year for the economy since the financial crisis.
Prime Minister Boris Johnson yesterday recommended people avoid “unnecessary social contact” and steer clear of pubs, restaurants and bars, which is likely to send demand plunging.
Chancellor Rishi Sunak, who last week unveiled a £12bn package to curb the fallout from the virus in the Budget, is expected to unveil more measures later today.
Sir Charlie Bean, OBR member, told MPs that the coronavirus hit “ought to be different from the financial crisis,” however.
“The key thing about the financial crisis is that there were underlying structural problems that we weren’t aware of going into the crisis.”
“There isn’t a fundamental structural problem in the economy that needs correcting, at least in the most part,” the former Bank of England deputy governor said.
Bean suggested the government might have to carry out measures as drastic as filling in businesses revenue streams for a year.
Both he and Chote said the government should unveil a big package that will help all businesses, rather than individual sectors such as aviation.
Chote said: “The lesson of earlier crises is that one sector’s problems in a situation like this quickly become every other sector’s problems.”
“This is not a time to be squeamish about one off additions to public sector debt. It’s more like a wartime situation,” he added.
Bean said that the deeper and longer the slowdown is, the more likely the governments will have to hand out “large-scale grants” rather than loans.
“Loans are fine if it’s bridging a relatively short period and the business hasn’t suffered a large loss in revenues.”
Yet he said firms are likely to struggle with the debt if they make it to the other side having lost money during the slump, preventing a bounceback.
Chote said: “I think there will inevitably be some scarring effect here that will persist for a while but hopefully relatively small.”