Chan­cel­lor must swal­low his pride and ex­tend vi­tal fur­lough life­line

The abrupt with­drawal of sup­port next month would fail to recog­nise Covid’s eco­nomic re­al­i­ties

The Daily Telegraph - Business - - Business Comment - Rus­sell lynch

The House of Lords has some fine minds, and nowhere more so than on its eco­nomic af­fairs com­mit­tee. Lord Skidel­sky wrote the de­fin­i­tive three-vol­ume work on John May­nard Keynes. Lord Burns, a for­mer chief eco­nomic ad­viser at the Trea­sury, was once tipped as a Bank of Eng­land gov­er­nor. Then there’s Lord Stern, an au­thor­ity on cli­mate change and a for­mer chief econ­o­mist at the World Bank.

With in­tel­lect like that, to­day’s com­mit­tee ses­sion with the CBI and TUC on the ques­tion of “will the Covid cri­sis lead to mass un­em­ploy­ment?” should be brief. You don’t need a PhD to come up with the right an­swer, which is: of course it will, un­less the Gov­ern­ment re­verses course on an avoid­able but en­tirely pre­dictable pol­icy er­ror, and ex­tends its fur­lough scheme be­yond the end of next month. If it does end on Hal­lowe’en, it will be a hor­ror movie for the jobs mar­ket.

In a year in which so­ci­etal and eco­nomic norms have been torn asun­der, the tax­payer’s con­tin­ued pres­ence in the pay pack­ets of mil­lions of work­ers is an ad­mit­ted aber­ra­tion.

But that doesn’t mean a hard stop is the right move. The in­tense de­sire for “nor­mal­ity” feeds through ev­ery politi­cian’s call, for ex­am­ple, for us to hop on trains and head back to the old world. Tear­ing off the fur­lough plas­ter is an­other man­i­fes­ta­tion of the trend, even though home work­ing is here for good and the virus is wor­ry­ingly re­sis­tant to po­lit­i­cal ef­forts to “move on”. But end­ing the job re­ten­tion scheme as the econ­omy heads into a bleak win­ter solves noth­ing and will com­pound the long-term eco­nomic scar­ring left by Covid-19.

Some num­bers for the learned peers to con­sider: there are 32.9m work­ers in the UK and, ac­cord­ing to the Of­fice for Na­tional Sta­tis­tics’ lat­est sur­vey, 11pc of them were still fur­loughed as of the end of Au­gust. That’s 3.6m work­ers cur­rently fac­ing a very un­cer­tain fu­ture af­ter Oc­to­ber. In hos­pi­tal­ity and food, the fur­lough share is much higher at around 25pc; in a UK cul­tural and arts scene ham­mered by so­cial dis­tanc­ing, more than half are still in the job re­ten­tion scheme. Hence the out­rage of MPs such as Ju­lian Knight, the chair­man of the cul­ture, me­dia and sport se­lect com­mit­tee, who warns the coun­try risks be­com­ing a laugh­ing stock if politi­cians let it go to the wall.

Those sug­gest­ing that the con­tin­ued pres­ence of fur­lough will sim­ply slow the re­al­lo­ca­tion of re­sources needed in an ef­fi­cient post-Covid re­cov­ery seem to as­sume that no­body will ever want to go to the the­atre again. Throw­ing th­ese and other work­ers into the big­gest jobs bon­fire since the early Nineties is folly, par­tic­u­larly as em­ploy­ers show no ap­petite to take them on. The lat­est jobs fig­ures show just 370,000 va­can­cies. As Bank of Eng­land rate-set­ter Michael Saun­ders pointed out in a speech the Chan­cel­lor re­ally should read, faster in­di­ca­tors show va­can­cies are still down by 55pc year on year, and there is a “marked weak­ness” in hir­ing in­ten­tions.

The eco­nomic risks are still heav­ily skewed to the down­side and house­hold sav­ings have shot up.

Fam­i­lies are un­der­stand­ably more wor­ried about un­em­ploy­ment and sav­ings have soared: this “para­dox of thrift” could be as big a hand­brake on the re­cov­ery as so­cial dis­tanc­ing.

To those ar­gu­ing a con­tin­ued fur­lough is un­af­ford­able, here’s an­other num­ber to con­sider: 2.8pc. That is the weighted 12-month av­er­age of the UK’s debt in­ter­est pay­ments as a share of its rev­enues in July, de­spite the vast ex­pan­sion of gilt is­suance since March. The per­cent­age is less than half the level which would have trig­gered alarm un­der for­mer chan­cel­lor Sa­jid Javid’s fis­cal rules.

Helped by lower in­ter­est rates and fall­ing re­tail price index in­fla­tion, we paid £2.4bn of debt in­ter­est in July; in fis­cal terms, that’s chump change.

The UK is pay­ing just 0.25pc to bor­row money for 10 years, even af­ter Thread­nee­dle Street slowed the pace of its as­set pur­chases. So why scrap it?

In­sid­ers who have dealt with the Trea­sury say the de­part­ment dis­likes fur­lough as a “blunt tool”, although that surely doesn’t stand as a rea­son to cosh the jobs mar­ket with its abrupt with­drawal. The Na­tional In­sti­tute of Eco­nomic and So­cial Re­search has sug­gested an ex­ten­sion un­til June next year at a cost of £10bn, even­tu­ally pay­ing for it­self by staving off longterm un­em­ploy­ment. Cyrille Le­noel, its econ­o­mist, sug­gests a ta­per­ing of the share of wages paid by the state by 10 per­cent­age points a month to zero next April. De­spite the of­fi­cial line, the more likely course is a smaller-scale tar­geted move to help spe­cific sec­tors most harmed by Covid, as Knight and a host of op­po­si­tion MPs have asked for, as well as di­rect sup­port to the busi­ness vic­tims which in­evitably find them­selves in lo­cal lock­downs this year. Busi­ness groups I’ve spo­ken to sug­gest this could be through the ma­jor ex­pan­sion of the £11bn in lo­cal au­thor­ity grants handed out so far.

Mes­sag­ing is the key, how­ever, for min­is­ters whose im­age has been scarred by a sum­mer of U-turns; hence you can guar­an­tee that what­ever the suc­ces­sor to the fur­lough scheme is, it won’t be called a fur­lough, or any­thing like it. It may be linked to train­ing, for ex­am­ple. But the “con­ver­sa­tions are go­ing on ev­ery day”, one source says.

The Chan­cel­lor has said he doesn’t want to give “false hope” to those on fur­lough by ex­tend­ing it. But re­fus­ing to act now is a con­scious choice, which says that he and his gov­ern­ment are con­tent with mass un­em­ploy­ment and the mis­ery it en­tails. It is also disin­gen­u­ous from a se­nior politi­cian whose de­ci­sion to stop the econ­omy due to a pan­demic has had far deeper con­se­quences for some than oth­ers. He should be throw­ing them an­other line, not cast­ing them off into the deep.

Rishi Su­nak, the Chan­cel­lor, has so far re­fused to give ‘false hope’ to fur­loughed staff

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