Britain’s middle-class will see wealth hit by coronavirus rescue

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Britain’s middle-class will see their wealth hit by the coronavirus rescue with pensions, house prices and savings dented, say economists

By Dan Atkinson and Simon Lambert For This Is Money

Published: | Updated:

Britain’s middle class will bear the lion’s share of the pain when the multi-billion pound support measures start to be withdrawn, economists say.

Their investments, pension pots and house values will all record a big hit once the epidemic has passed and as Ministers unwind the huge economic stimulus and try to reduce what will have become a colossal debt mountain.

These are findings of a panel of distinguished economists assembled by The Mail on Sunday to look at the likely long-term implications of the crisis.

Chancellor Rishi Sunak has said the Government will do whatever it takes, but Michael Gove indicated yesterday that will come with a bill in the future

Pensions look set for three blows, they said. 

Professor Peter Spencer, of the University of York, said nationalising companies vital to the economy was on the cards, and on terms less generous than those received by bank shareholders during the financial crisis of a decade ago.

‘I wouldn’t be surprised if the Government tries to separate British Airways from the rest of International Airlines Group and renationalise it,’ he warned those with IAG shares in their pension pot.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, said the crashing stock market had already caused great damage to pension schemes and there was no guarantee share prices would bounce back.

A third blow, said Professor HaJoon Chang, would be the ultra-low returns with the Bank of England base rate at 0.1 per cent.

He added: ‘It is contradictory for authorities to urge people to save for old age then cut the returns to practically nothing.’

Yesterday, Michael Gove indicated in an interview that Britain could face years of fresh austerity to try to balance the books after the Covid-19 outbreak is over.

The Cabinet minister said it was right to put the UK into lockdown although it meant ramping up UK debt, as you cannot ‘put a price on lives’.

But he said the massive hole left in the country’s finances by rescue packages for workers and businesses will need to be paid off ‘in due course’. 

This stands in contrast to some suggestions that the Bank of England will help the fund the fight back by ramping up quantitative easing, creating new money to buy government bonds.

However, there are economic concerns about using unusual monetary policy to fund fiscal expansion, which is often called monetary financing.

The tough message came as forecasters said the impact on UK plc from coronavirus will be many times greater than from the credit crunch.

Investment firm Nomura expects an unemployment rate of 8 per cent in the next quarter, up from just 3.9 per cent in January, according to the Sunday Times.

Will coronavirus sink house prices? 

The property market has been frozen as estate agents are instructed not to do viewings and valuations and surveys can’t happen.

Meanwhile, banking giants Barclays and Halifax have axed a big chunk of their mortgage ranges – only offering new deals through brokers to those with the largest deposits – and the industry says it has been overwhelmed with requests for mortgage holidays.

Amidst all this, many are asking the inevitable question: ‘What will happen to house prices?’

On this podcast, Simon Lambert, Lee Boyce and Georgie Frost look at what buyers and sellers can do, how the freeze is affecting those due to move, and explore what could happen next for the property market. 

Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page.  

Could small firms insure against another pandemic?

Insurers are set to hold talks with the Government with a view to insuring small businesses against another catastrophic pandemic, writes Helen Cahill.

Trade body the Association of British Insurers said it would be pushing policymakers to consider creating a Government-backed plan.

Huw Evans, director general of the ABI, told The Mail on Sunday it was impossible for insurers alone to provide cover to small firms for an event as devastating as the current virus outbreak.

He said insurers would go bust if they had to pay out claims to British businesses with total revenues of £4.4trillion all at the same time.

He said: ‘To insure against that on a normal economic basis would be unaffordable for every business in the country. The only way you can insure against such a risk is with direct state support.’

Evans said insurers would offer to work with the Government to build a specialised scheme that would pay out to firms forced to shut down in a future pandemic.

 

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