George Osborne warns tight bank lending could crash the economy if Coronavirus causes firms to fail

Chancellor Rishi Sunak must move to ‘vaccinate the economy’ against the shock of a coronavirus shutdown in the Budget, his predecessor George Osborne warned today.

The former politician, who oversaw austerity in the years following the 2008 financial crisis, raised the spectre of banks refusing to lend money if businesses start going to the wall.

He suggested the Government should be prepared to underwrite small businesses with limited cash reserves and use pre-existing national insurance tax breaks for workers stuck at home. 

Businesses are set to face mounting pressure, with hundreds of thousands of workers and consumers facing the prospect of being ill and self-isolating at home to hinder the spread of the outbreak, which has killed three people in the UK.

It came as the FTSE 100 plunged 8.5 per cent this morning and saw its value bomb by £130billion – a freefall not seen in12 years – as markets and the price of oil collapsed on ‘Black Monday’ because of coronavirus with a global recession now on the cards.

Mr Sunak will unveil his debut Budget on Wednesday, with a stripped-back package of announcements designed to tackle the impact of the pandemic. 

Mr Osborne told BBC Radio 4’s Today programme: ‘Have an eye on the banks. 

‘I know no one wants to hear about the banks again after everything we have been through in the last decade.

But the banks have lent money to many of these businesses, if the businesses start to go under then you will start to have that problem of banks being unwilling to lend and their balance sheets being weaker.’

Mr Osborne, now the editor of the London Evening Standard, added:  ‘If I was Chancellor of the Exchequer, I would make this a Budget for the coronavirus, I would do everything I could to vaccinate the economy against what is going to happen.

‘If we can’t vaccinate people against what is going to happen, I would provide the cash for businesses and individuals that don’t have it at the moment because of the impact of the virus, and try and provide that immunity to the economy going forward.’

Mr Osborne said the money needs to be made available immediately to businesses that have been hit by a ‘short-term’ downturn in their profits or with sick staff.

‘If I was chancellor, and I’m sure Rishi (Sunak) is thinking like this, I don’t want some complicated scheme that is going to be working in six months’ time,’ he said.

‘I need to use the tools that are available to me right now to help people who are unable to work because their business has shut or they are self-isolating or they have got the virus, and to help those small and medium-sized businesses that will have very limited cash reserves and therefore could go into bankruptcy.

‘It is a short-term help. It is not like we are going to have 10 years of this.’

Mr Sunak yesterday said the Budget will give the NHS and business ‘whatever it needs’ to stop coronavirus wreaking permanent damage to the economy.

He warned that UK PLC is set for a ‘shock’ as the killer disease spreads around the globe.

But he insisted the effects would be ‘temporary’ and Britain is ‘well prepared’ to cope with the situation. 

He made clear his first financial package this week will focus on supporting businesses amid fears a fifth of the workforce could end up being off sick, and pledged to give the NHS would get the resources to deal with a feared mass impact in this country.