Where Will the Government Get Its Coronavirus Bail-Out Money From?

Forklift with Money BagYou have to praise the response of the UK government to the coronavirus pandemic.

Sure, you could argue that they were a bit slow to enforce the slightly draconian measures, such as social distancing and lockdown, that have become a pain but complete necessary to protecting the welfare of the NHS and thus saving lives.

Many, many industries have also been shaken to their core by COVID-19, with workers ‘furloughed’ (a phrase many of us had ever heard before prior to the last couple of weeks) or, in the mast saddening of instances, made redundant.

The government had to act, and they have done so with considerable gusto with Boris Johnson and Rishi Sunak guaranteeing 80% of lost wages to the affected workforce, while dismissing business rates for the next calendar year. Benefits have also been increased, as well as a range of other tax holidays to help alleviate some of the damage.

It’s a hugely generous offer that has been welcomed even by the government’s key critics, although there is one question that is perhaps on many peoples’ lips:

Where will the Prime Minister actually get this coronavirus relief money from?

Where’s My Money, Boris?

Money on Scales

The reality is that for many, the need for an instant cash injection is imperative to ensure that bills are paid and food is put on the table.

And so many businesses have see their revenue disappear almost overnight, with many having to give perishable stock away for free.

So time is very much of the essence right now….and Boris will need to get his systems in place to dish out his coronavirus relief funds rather quickly.

But where will he actually get this money from?

Typically, you might think the answer is to borrow it, and the reality is that a spending gap of tens of billions will need to be plugged immediately.

The issue further down the line would then be paying back the borrowed cash – that will presumably come in the form of increased taxation and further austerity, although it would be rather churlish to call the government out on that right now.

The extent of such borrowing would ultimately depend on how long businesses are out of action for – this will determine the size of the black hole that the economy becomes. At the moment, nobody can really say with any authority whether COVID-19 is here for weeks, months or, in the absolute worst case scenario, a year or more.

A Question of Tax

With many firms closed for the foreseeable future, one of the government’s key revenue streams has dried up.

There’s not many taxable angles for Boris to exploit right now, and the other major worry is that some investors are pulling their money out of government bonds and pensions, while insurance money is being gobbled up by individuals who need it right now.

With the stock market also in freefall, generating cash reserves is proving to be rather tricky.

There will be more loan payments made and mortgage holidays taken, and all of which means that the free flow of money from people to business to government has been diminished significantly.

Many will turn to the bank of mum and dad during these uncertain times, while Boris may have to go cap in hand to the Bank of England.

Fire Up The Printers

Money Coming Off Printing Press

The Bank of England has been in a much better place of late, and that has coincided with the start of the process of quantitative easing – that is, the £200 billion of government borrowing from the private sector is now in the process of being acquired back.

The concept of simply printing more money – sorry, ‘monetary financing’ – will one again rear its head, but that is the financial equivalent of heading down to the Winchester and waiting for the whole situation to blow over. Long term, it can create more problems than it solves.

With little tax revenue coming in and even less of an appetite for government bonds, the Bank of England is the only real source of quick cash for the Prime Minister to plunder, and they will surely have to lift their own restrictions in order for the PM to get his hands on as much of the reserves as he needs.

It will enable him to start rolling out his coronavirus relief plan, with the worst-affected possibly seeing payments hit their bank accounts in April.

But history dictates that smart decisions need to be made right now, or the financial implications of bailing out the electorate could be far-reaching for years to come.