It has become increasingly clear that businesses are unwilling or unable to take on additional debt during what threatens to be the gravest economic crisis since the 1930s.
The government has moved quickly to introduce and then overhaul measures to supply hundreds of billions of pounds in credit to the UK economy.
However, its not supply that’s the problem. It’s demand – in two very important and different respects.
First, customer demand.
Apart from groceries, no-one is really buying anything. Yes, you can get deliveries of make-up, compost, and thousands of other products from various online marketplaces, but demand for what the UK service-based economy produces has collapsed.
Many shops, restaurants, bars, hairdressers, pet stores, garden centres are facing imminent ruin.
Second, demand for credit.
Given the above, why would any business put itself further in debt when there is zero clarity on when business may return to normal?
Yes, the government has ordered banks to remove the requirement for business owners to provide personal guarantees for loans up to £250,000.
For loans over that amount, they have also told banks they cannot ask for guarantees in excess of the 20% of the loan (given the government is guaranteeing the other 80% it would be a scandal if banks tried to do this, frankly).
As things stand, the government’s 80% guarantee is to the lender – not the borrower. Anyone who takes out these loans – whose interest rate the government has not capped – will be 100% liable to pay them back albeit with a 12 month deferral – not holiday. The debt and interest must still be paid.
So what can be done? Here are three ideas I have heard floated.
1. Don’t defer, forgive.
Banks should permanently forego interest payments for the period of April to June.
UK banks were the recipient of hundreds of billions of pounds of financial support 11 years ago.
Analysts at stockbrokers AJ Bell estimate the bill for interest on personal and company loans is roughly £28bn every three months.
The government has effectively ordered the banks to halt dividend payments for the rest of the year.
That gives banks additional capital resources of roughly £15bn for the calendar year – above and beyond the Bank of England’s decision to relax the rules on how much capital they need to hold. The major banks’ capital position is secure. They can afford it.
2. Given banks are able to borrow from the Bank of England at close to 0.1%, and that 80% of these loans will now be guaranteed by the government, it seems a bit excessive that many high street banks are charging in excess of 8% for loans that, as the government has already said, could only be taken out by businesses that were viable on their eve of the crisis.
I have been inundated by comments from such businesses that say that if they could borrow a million quid at cost (0.1% is bank rate – or £1000 pa) for one or two years, they would.
3. Any business that pays a dividend to shareholders between now and year end should be disqualified from any government bailout.
Many people think it is entirely unacceptable that any business that pays out a dividend during this crisis should then turn towards the taxpayer for cash handouts.
There are some interesting cases to watch.
P&O ferries has said it will need government support to ensure that vital ferry crossings, which despite collapsing numbers of leisure passengers have also preserved a vital link to the food and other essential items we import from the EU. P&O is owned by Dubai-based DP World, which is due to pay its shareholders a dividend of £270m in two weeks.
Easyjet paid a dividend of £174m two weeks ago and may now be seeking financial assistance from the government, although it has stressed it wants loans and not a bailout.
Some of the other big dividend payers will face understandable public resistance if shareholders are protected only for companies to throw themselves on the mercy of the tax-payer.
These issues are not easy.
As I’ve said before, the government is dealing with a very destructive boulder, gathering momentum down a very steep hill, crushing businesses and whole national economies in its way. It is a very hard thing to get ahead of and slow down.
The government has taken unprecedented steps to try and do that.
Blunt instrument
Large parts of the business community have also tried to rise to a once-in-a-century challenge. Many have used their ingenuity, expertise, logistical know-how and a sense of decency to do what they can.
Some, if not all, the measures I’ve heard, and presented here, will do serious damage to pension funds who rely on these companies to pay out money to them and their pension scheme members – their ultimate owners.
But this is an economic, existential challenge. There is a live debate about whether the cure is more deadly to our future wellbeing than the disease itself.
One thing is certain. It is not just weak businesses with underlying health conditions that will go bust. The search for an economic vaccine to this virus is arguably as important for the well being of millions as the search for a medical answer.
The ideas suggested to me and presented here have been described as a “blunt instrument” by government officials.
But when it comes to an economic outlook that some experts argue is as dire and as significant threat to public health as the virus itself, it’s reasonable to ask whether any instrument is too blunt.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
