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

The Daily Telegraph - Business - - Front Page - By Laura Onita

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

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