Launching an attack on the government over its emergency loan guarantee system for businesses in difficulty during the crisis, Lord King said that ministers must urgently “master” the situation to avoid lasting damage to the economy. ‘economy.
In an interview published the day after the current Governor of the Bank, Andrew Bailey, said that the British economy could rebound much faster than after the crash of 2008, he said: “It is stupid to make precise numerical forecasts at this stage. What I will say is that there is too much confidence in a rapid V-shaped recovery. It will take longer. “
King led Threadneedle Street’s response to the near collapse of the banking system, before retiring in 2013 to be replaced by Mark Carney. He told Reaction comment website that it is important that the productive capacity of the British economy is not damaged by unnecessary bankruptcies.
But he said he was concerned about the plight of small and medium-sized businesses because the government’s loan scheme was plagued by problems that the treasury had needed to address since its launch.
“Someone in government has yet to understand this,” he said, adding that ministers should appoint an outside expert to manage the Coronavirus Disruption Loan Program (CBILS) and the new loan program rebound to accelerate business loans.
“Politicians are used to making announcements. But they have no experience in managing anything. I think the problem has been less the high-level design of the regimes and more the need to worry about their implementation on the ground. “
An increasingly outspoken critic of British economic policy since he resigned, King’s intervention comes after the Bank warned that the country was headed for the steepest recession in more than three centuries. The Bank said the economy could shrink 14% this year, the biggest recession since the slowdown in 1706.
However, he believes the economy could recover quickly next year, with a growth rate of 15%, returning to its pre-Covid-19 peak in the second half of 2021 in a strong V-shaped recovery.
King criticized high street banks for processing CBILS loans too slowly, saying they had a “clean mind” that kept them from getting out of the money faster. “They anticipated the losses these companies could make and they knew the loans would never be paid back,” he said.
The government increasing its loan guarantee up to £ 50,000 for small businesses under the rebound program – which offers 100% guarantees – was a step in the right direction, said King. But he argued that the government should have guaranteed 100% of all loans from the start of the program, at least for an initial period until the economy begins to recover.
Chancellor Rishi Sunak turned back last week following pressure from the government by Labor and business leaders to rethink the small business loan scheme, which had previously offered only 80 % of state guarantees.