Rishi Sunak was concerned about the UK’s ability to fund itself in March 2020 after the government announced rescue measures costing tens of billions of pounds to prevent mass redundancies, the Covid-19 pandemic inquiry has heard.
The former prime minister, who was chancellor when the first UK lockdown was announced, said he feared foreign investors had become more concerned about Britain’s ability to pay its way than other countries in a similar situation.
Reflecting on the chaos in the early days of the pandemic, Sunak said it was “acutely stressful” to see the interest bill on government bonds rising after only a month as chancellor.
He said the period “was intense and filled with anxiety, certainly for me”. The market for UK government bonds, also known as gilts – the oldest major asset market in the world – was witnessing major turmoil in April 2020.
Sunak said: “I’d been chancellor for, you know, what felt like five seconds and then you could see a very material tightening in UK financial conditions.
“And in the end, we organised with the Bank of England something called the ‘ways and means’ facility, which thankfully we never needed to use, but essentially as a backstop for the government if it can’t raise the money it needs on the bond markets.”
He said the facility, in effect a large overdraft organised with the Bank of England, was last used in the financial crisis and would have lasted for “a temporary period of time”.
Instead, the central bank extended its quantitative easing (QE) programme, creating £200bn to purchase government bonds and easing the concerns of foreign investors.
Sunak said job subsidies such as the furlough scheme, while expensive, meant ministers were successful in “preventing mass unemployment”, which was the “biggest fear” in the early stages of the pandemic.
He agreed with Andrew Bailey, the Bank of England governor, who gave evidence earlier in the inquiry, that there was the potential for a breakdown in social order without significant government intervention.
He said there were projections that unemployment would rise from about 4% to 12%, which would have left millions of people without a job.
The number of people in work fell by 825,000 between January to March 2020 and October to December 2020, while unemployment rose by almost 400,000 and the number of people who were economically inactive rose by 327,000, according to House of Commons library research.
Sunak said that in the early days of the pandemic his priority was to protect people’s jobs, household incomes and to ensure businesses did not fail.
He said there was no “perfect science” to the decisions he made and acknowledged he was constantly weighing difficult economic trade-offs when formulating policy.
“It wasn’t going to be possible to save every single person’s job, and people were going to experience economic hardship as a result of what was happening,” Sunak said. “I thought it was important to be honest with people about that upfront.”