Rishi Sunak has revealed the intense pressure he faced as Chancellor in early 2020, admitting he was deeply concerned about the United Kingdom's ability to fund itself during the chaotic onset of the Covid-19 pandemic.
'Acutely Stressful' Market Turmoil
Giving evidence to the official Covid-19 inquiry in London on Monday, the former Prime Minister reflected on the period as 'intense and filled with anxiety'. He described it as 'acutely stressful' to witness the interest bill on UK government bonds, known as gilts, rising sharply just a month into his tenure at the Treasury.
Sunak explained that after announcing unprecedented rescue packages worth tens of billions to prevent mass job losses, he feared international investors had grown more worried about Britain's fiscal sustainability than about other nations in a similar position. The gilt market, the world's oldest major asset market, experienced significant turmoil in April 2020.
The Emergency 'Ways and Means' Backstop
Faced with this crisis, Sunak's team and the Bank of England prepared a secret financial backstop. They revived the 'Ways and Means' facility, effectively a large government overdraft with the central bank, last used during the 2008 financial crisis.
'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,' Sunak told the inquiry. 'Essentially [it was] a backstop for the government if it can’t raise the money it needs on the bond markets.' He noted the facility was thankfully never used and would have been for temporary support only.
Instead, the Bank of England expanded its Quantitative Easing (QE) programme by £200 billion to buy government bonds, a move which helped to calm the fears of foreign investors.
Weighing the Trade-Offs to Prevent Social Breakdown
Sunak defended expensive interventions like the furlough scheme, stating that while costly, they were vital to 'preventing mass unemployment', which was the government's biggest fear. He agreed with Bank of England Governor Andrew Bailey's earlier testimony that without major state intervention, there was a real risk of a breakdown in social order.
Officials had projected that unemployment could rocket from around 4% to 12%, leaving millions without work. House of Commons library research later showed the severe impact: between the first and final quarters of 2020, the number of people in work fell by 825,000, unemployment rose by almost 400,000, and economic inactivity increased by 327,000.
Sunak concluded that his priority was protecting jobs, incomes, and businesses, but acknowledged there was no perfect science to the decisions. 'It wasn’t going to be possible to save every single person’s job,' he said, 'I thought it was important to be honest with people about that upfront.'
