WH Smith puts 1,500 jobs at risk as commuter trade slows
There is a high risk that tightening now will abort the recovery, spelling the end of this government
WH SMITH is axing up to 1,500 jobs after demand collapsed at its branches in train stations, airports and cities.
The firm is preparing to slash more than a tenth of its workforce in a scramble to save money, after a previously successful bet on passing trade from commuters proved disastrous in the face of the pandemic.
WH Smith said most job cuts would be in its travel stores, but some managers at high street branches would also be made redundant because it planned to simplify how shops were run.
In another bleak sign for the employment market, HS2 contractor Aecom is poised to cut 500 jobs due to the crisis.
The decision means that major compa- nies have announced the potential layoffs of more than 6,000 people so far this week.
Furthermore, Renfrewshire fashion retailer M&Co – which was previously known as Mackays – is to close 47 shops as part of a pre-pack administration, leaving 215 open. Almost 400 jobs will be lost out of a 2,600-strong workforce.
Separately, Sky News reported that restaurant chain Yo! Sushi is considering a so-called company voluntary arrangement with landlords to cut its rent, while hotel company LGH has told about 1,500 staff they are at risk of redundancy, according to the BBC.
Britain is heading for an unemployment crisis of Biblical proportions by the end of the year unless Treasury policy is torn up very soon. Businesses will start “shedding” jobs rapidly in September as the furlough scheme dials down to 70pc of wages. It will reach a grim crescendo when support stops altogether at the end of October, long before the economy is in any fit condition to absorb the army of unemployed.
“It is one of the biggest policy mistakes in modern British history,” said Nobel laureate Chris Pissarides from the London School of Economics.
Only half of the 9.6 million furlough jobs have so far come back. There must be a high risk that premature fiscal tightening will abort the recovery and lead to bitter social conflict, spelling the political death of this government.
While Germany, France and Australia, among others, are extending support measures into next year, the Treasury offers us the £10 eat out scheme, a mix of macroeconomic frivolity and bureaucratic tinkering that clashes in any case with the parallel message on virus control.
Chancellor Rishi Sunak undoubtedly has an impossible balancing act. He is right to worry about the corrosive cultural effects of free money. Propping up obsolete sectors has its own dangers. “At some point you have to stop trying to save jobs that may never come back and pivot to retraining for new jobs,” said Prof Jonathan Portes from Kings College, London.
But why pull away the fiscal rug so soon when there is every chance of a transforming vaccine by early next year? Why risk recessionary metastasis?
We do not know the shape of global recovery or the future course of the pandemic, but if there is anything less than a V-shaped rebound in the UK this policy error may rank with Churchill’s restoration of the Gold Standard at pre-war parity in 1925, which led to grinding deflation and the General Strike a year later. It also elicited the prescient warnings of John Maynard Keynes in The Economic Consequences of Mr Churchill.
The contractionary policies of the Twenties did not reduce the debt ratio despite a primary surplus of 7pc of GDP. The ratio climbed yet higher to 170pc because the nominal base of the economy shrank. The strategy was self-defeating even on its own cruel terms. Churchill was bounced into this decision by Treasury pin-stripes against his instincts.
He later deemed it the greatest mistake of his career, worse than Gallipoli, which was at least a plausible strategic concept, had it been executed with more skill.
Sunak has his own problems with the Treasury, an institution that brought us the Osborne austerity, when public investment was slashed to the bone, pro-cyclically, at a time of quasi-recession, all in the futile pursuit of a debt stabilisation that would have been achieved better by betting on growth instead.
They cut investment because it was easy to cut, but it was also the most destructive form of austerity, as we know from a library of scholarship on productivity and the stellar record of the super-investors: Switzerland, the Nordics and Korea.
Sunak’s handling of the crisis has until now been excellent. He endorsed the call for a blast of infrastructure and technology spending while Britain can borrow for half a century at near zero rates. Projects with a multiplier above 1.0 that pay for themselves over time are a no-brainer.
He quashed a Gothic strategy report by Treasury officials evoking dangers of a Seventies gilts crisis (there wasn’t one) in order to push for tax rises and sweeping welfare cuts.
But then the mood changed. Fear of the bond vigilantes came back, even though there is not a flicker of market trouble. “Suddenly they are saying there is no more money. It is completely wrong. If you maintain growth you may not even need to raise taxes much in the end, if at all,” said Pissarides.
Britain’s public debt has an average maturity of over 14 years, the longest of any major economy. The debt ratio is in the middle of the pack. Gilts look shabby until you glance at Japanese, US, French or Italian debt, and reserve managers have to park their trillions somewhere.
There may well be downgrades by rating agencies but not because Britain deploys fiscal buffers to prevent tissue damage, but rather for the opposite reason: because a failure to stay the course on fiscal support puts both the economy and social stability at risk. Standard & Poor’s has five key criteria for judging a country, and the fiscal deficit is last among them. What matters more is holding the economy together. “The message is go for growth,” said Frank Gill, the agency’s Europe director.
What accounts for this austere ideology at the heart of the British establishment? Why is their economic thinking so far at odds with the bond markets, the global professoriate, and the born-again Keynesians of the International Monetary Fund?
The Office for Budget Responsibility is a part of the problem. The IMF long ago admitted that it had misjudged the potency of the fiscal multiplier in a zero-rate world. But the OBR did not do so, and that single difference entirely changed the calculus on fiscal policy and fed into the austerity doctrine.
The OBR’s Fiscal Sustainability Report includes a chart depicting an explosive rise in the UK debt ratio over the next half century to 325pc of GDP in an “upside scenario” and 525pc in a “downside scenario”. This is a theatrical stunt that you can pull with most OECD countries.
It suggests that this debt trajectory must be tamed by “fiscal tightening” as if such a vicious cycle could ever work, and as if we lacked better ways to achieve the objective. Change the intellectual frame and deem the remedy to be “investment in education and technology” that raises the growth speed limit, and you implicitly see spending as the solution.
The OBR blinds us with science. It warns that Britain cannot take cheap funding for granted since the rising stock of global debt since the pandemic could lift the “natural” rate of interest. But a rise in the natural rate is devoutly to be wished since it is the way off the deflationary conveyor belt. It will happen only if there is faster trend growth and inflation, in which case the debt takes care of itself.
Sunak’s gamble on recovery might be vindicated, but would it not be wiser to take out the insurance of Pascal’s wager? If the Chancellor is right, the outcome will be messy at best with jobless distress lasting deep into the 2020s; if he is wrong, it means perdition.
Rishi Sunak, the Chancellor, on a visit to a Jobcentre in London. If the fiscal rug is pulled away too soon there is every chance of a huge wave of unemployment