Boris Johnson has announced new drastic steps to try and tackle coronavirus

The airline and leisure industries are in particular trouble as Britons stay at home

Unusual measures including printing money and handing it directly to people and businesses have been put forward as the world presses the pause button

Here’s how to help people impacted by Covid-19

Britain has joined the rest of the world in pushing the pause button to try to combat the coronavirus pandemic.

This has sent the economy into uncharted waters and could lead governments and central banks there too, as they try to pull off rescue plans big enough. Highly unusual financial measures including helicopter money, people's QE and a universal basic income are being seriously discussed.

ADVERTISEMENT

The prospect of universal basic income, where all Britons were given cash sums, was discussed by Prime Minister Boris Johnson as being on the table this week.

But what do all these terms mean, how could they work and why is there such great pressure on the authorities to start handing money to businesses and people? This is Money takes a look.

Boris Johnson announced more drastic measures yesterday in a bid to counter coronavirus

Unusual medicine for strange times: Helicopter money, people's QE or universal basic income

This week Boris Johnson told millions of Britons to stay at home, work from home, not socialise, and not visit pubs, restaurants, theatres, or cinemas for an undisclosed period of time, to combat the coronavirus pandemic.

On top of this, the Foreign Office has advised against all travel abroad and schools will be closed across the UK from today (Friday 20 March).

This creates enormous problems for people who need to work and get paid and businesses, which are hugely reliant on spending and the normal operation of the consumer economy.

The most obvious examples so far are the airline and hospitality industry businesses in big trouble. But firms of all stripes have seen their share prices crater and there aren't many whose entire business plan doesn't revolve around the normal operation of the consumer economy as we know it.

At the same time, employees are being told to work at home, but that is not an option for everyone and some will go unpaid or be laid off. The self-employed, gig economy workers and those on low incomes fear seeing their earnings dry up.

As a result, in a bid to stop normally viable businesses from going bust and people from going into debt, some previously outlandish economic measures are being considered.

These are designed to pump money into the UK and global economy and keep firms and workers on economic life support until the coronavirus crisis one day passes and life goes back to something approaching normal.

So far, traditional central bank medicine, such as cutting interest rates and quantitative easing - which involves buying bonds to inject money into the financial system - has fallen flat. And even Chancellor Rishi Sunak's £350billion rescue plan for Britain was criticised for involving loans not grants.

In contrast, the three main treatments being talked about all involve giving money directly to businesses and people (most likely it would be funded by central banks printing more money).

ADVERTISEMENT

All are slightly different: they are helicopter money, People's Quantitative Easing (known as QE) and a universal basic income.

Click here to resize this module

What is the problem?

The problem is one of supply, followed by demand.

A supply shock makes it harder, or more expensive, to produce things for sale, in this case thanks to a virus making people sick and forcing them to take time off work and forcing companies to shutter.

The demand problem comes from the world pressing the pause button on the consumer economy. When people do not shop, go to the pub, out to dinner, or to the cinema, do not travel to work, or go on holiday there are obvious problems.

There is also a knock-on effect though, as those businesses don't buy things and other parts of the economy from house sales, to construction work and manufacturing dry up.

This won't show up in UK figures yet and the best guide we have is China. According to new figures, China's industrial output fell 13.5 per cent in January and February as coronavirus brought its economy to a standstill.

The problem is that when you are telling people to stay at home, many traditional recession-fighting measures such as interest rate cuts don't work, as they mainly aim to stimulate demand.

Why is cutting interest rates and QE not working?

Virtually none of the measures which worked in 2008, particularly cutting interest rates, are going to have the slightest bit of impact. Jim O'Neill

In 2008, the playbook to fight the financial crisis involved central banks slashing interest rates, making lending cheaper, and printing money to buy bonds, a process known as quantitative easing.

This was designed to keep interest rates low and pump money into the economy.

But this crisis is different, because the problem is not with the financial system, meaning those measures are too indirect and don't get to the problem at hand. That problem is considerably more acute in that businesses are being deprived of revenue and people are stuck at home.

Doug Holtz-Eakin, an American economist who was an adviser to John McCain in 2008 and served under President George Bush Sr, told NPR: 'I think the best analogy for what's going on right now is the aftermath of the terrorist attacks of 11 September 2001.'

ADVERTISEMENT

But while the Bank of England, and its US equivalent the Federal Reserve, has cut interest rates, former Treasury minister Jim O'Neill told BBC Radio 4's Today programme this week that 'virtually none' of the measures which worked in 2008, particularly cutting interest rates, are going to have the slightest bit of impact.'

Chancellor Rishi Sunak announced £330bn of financial support for businesses affected by coronavirus, but the Government is likely to go further

What do we need to get money directly to businesses and people?

Attention has turned to government, or fiscal, policy. Potentially funded by borrowing or simply creating more money, proposals have focused on using the Treasury's coffers to shore up the finances of businesses and people.

Some of this was on display in the Budget last week, with chancellor Rishi Sunak pledging £30billion in lending to businesses, giving business rate relief to most small firms, and saying everyone asked to self-isolate due to would get access to sick pay of £94.25 a week from day one, rather than day four.

But given the escalation of both the virus and the government's actions in just a week, this was upped to £350billion worth of help on Wednesday this week.

The Chancellor repeated the mantra: 'We will do whatever it takes.'

However, this week's package drew criticism as it will take the form largely of Government-backed loans, along with some grants of up to £25,000 and tax breaks.

Critics said that direct cash handouts are the best remedy not loans that need to be paid back. Ultimately, they are calling for something along the lined of helicopter money, people's QE or universal basic income.

Some have called on the Government to underwrite the incomes of people and businesses affected by the virus and the response to it, although the Chancellor told the Commons the Government's next step would focus on supporting people's incomes.

Similar have already been put forward in the US by President Donald Trump and in France by Emmanuel Macron.

The latter pledged as much as €300billion in state guaranteed money for businesses, and said none would go under because of the virus, while Trump pledged to 'backstop' airlines which have seen a rapid plunge in bookings.

French President Emmanuel Macron pledged no business would go under due to coronavirus

In the UK, the obvious business candidates for initial assistance would be the hospitality and leisure industries, as many firms will be shutting their doors after people were told to avoid all non-essential social activity.

John Cauldwell, the founder of Phones4U, echoed Macron's announcement, and said the Government 'must not let any business go under.'

He added: 'We need to protect the wages of the workforce, if we don't, they'll borrow, go into mortgage default, and tens of millions will be in massive financial difficulty.'

He recommended a package of 'hundreds of billions' of pounds.

But what form could this funding take?

Helicopter money

Nobel Prize-winning economist Milton Friedman came up with the idea of 'helicopter money' in 1969

One of the suggestions to rescue the economy is so-called helicopter money.

Thought up in 1969 by economist Milton Friedman, it is so called because large sums of money would be printed by a central bank and handed out to people, as if dropped by helicopter.

Steve Donze, of Pictet Asset Management, said: 'Essentially, it means monetary authorities give people extra money in the form of a tax cut, vouchers or an increase in public spending.

'At the same time, the authorities pledge that they will not raise taxes at a later date to recoup the additional funds.'

More money in the financial system would theoretically increase inflation, as has been floated as a way to fight deflation.

But the effect of that would be limited if people can't spend, if cinemas, pubs and shops are closed it will be hard to stoke inflation.

Authorities give people extra money in the form of a tax cut, vouchers or an increase in public spending - and pledge they will not raise taxes at a later date Steve Donze

Instead, helicopter money to fight coronavirus would likely be a way of ensuring people who cannot work still have money to buy food and other essentials.

The Trump White House appears to be planning exactly this, with the President saying the US would potentially send cheques to Americans within two weeks as part of a whopping £1trillion package.

Former presidential candidate Mitt Romney outlined a plan to give Americans $1,000 each.

Could the UK government do the same? The criticism would be that considering the disruption of Covid-19, this wouldn't even go that far.

Get to the chopper: The Trump White House is reportedly planning 'helicopter money', though it is unlikely to be dropped by Arnold Schwarzenegger,as pictured in the 1987 film Predator

What is People's QE?

Jim O'Neill's preferred option, people's QE is pumping money into the economy 'directly to people', he said, 'to compensate for these very tough instructions to self-isolate and stop working'.

He added all businesses and income earners should be compensated 'for at least two months to make sure everybody feels vaguely content they're not going to suffer as a result of this'.

It is similar to helicopter money, in that it is central bank money handed directly to people, which differs from the quantitative easing introduced in the aftermath of the 2008 financial crisis.

Former Treasury minister Lord Jim O'Neill called for 'people's quantitative easing', which would pump money into the economy and give it directly to people in need

The term was made popular by Jeremy Corbyn in his 2015 election bid, with the idea that QE could be restarted and used to directly fund infrastructure projects.

Regular QE worked by the Bank of England purchasing government bonds or bonds issued by banks using money it created, in a bid to fund the lending of those banks. 'People's QE', as the name suggests, would instead be aimed directly at real people.

Alternatively, it could be given straight to firms. There have even been suggestions of one rescue measure that involves businesses being guaranteed the same revenue as the previous year.

The advantage of people's QE over helicopter money is that strings could be attached. For example, any business having its revenue guaranteed could be made to promise not to make any workers redundant.

Will we get a universal basic income?

A third and final option put forward is an idea which has been popular among those on both the left and libertarian right for years, a regular cash handout for every person.

It was even hinted at by Boris Johnson earlier this week and has been trialled in some countries, most famously Finland.

This is different to the other two options in that a universal basic income would possible be similar to a benefit handed out directly by the Government, rather than the Bank of England, and likely the Department for Work and Pensions.

Hong Kong's February budget included a proposal for £1,000 for every resident over the age of 18, while Australia handed out around 900 Australian dollars to everyone in the aftermath of the financial crisis.

Much like helicopter money or people's QE, this would be to temporarily cover the finances of people unable to work due to the virus, however, it could even become permanent and has been suggested as a way of dealing with robots taking people's jobs.

It's an idea This is Money has previously looked at and is incredibly expensive. Last year, a report commissioned by Labour Shadow Chancellor John McDonnell found a £48 a week allowance for all adults would cost around £150billion, and that £48 is already lower than statutory sick pay.

At the time, Torsten Bell, chief executive of the think tank the Resolution Foundation, cautioned against introducing new benefit systems and instead suggested the focus should be on ensuring sick pay and unemployment benefits covered people off work, and on 'maintaining attachment between workers and their firm where the problem is temporary'.

ADVERTISEMENT

He tweeted: 'We've all got ideal welfare systems to argue for but the priority must be real help that can be delivered fast.'