Do­ing ‘the right thing’ could mean hard choices

If the Chan­cel­lor re­ally wants to re­shape the post-Covid UK, then he should break the link be­tween em­ploy­ers and fur­loughed staff

The Daily Telegraph - Business - - Business Comment - Rus­sell Lynch

Rishi Su­nak, the Chan­cel­lor, has been urg­ing busi­nesses to “do the right thing” and hang on to fur­loughed staff for a few more months and claim his £1,000 job bonus. But the key ques­tion here is: do the right thing for whom? Is it the “right thing” for vi­able busi­nesses to be en­cour­aged to keep on staff that they should re­ally let go? Is it the “right thing” for work­ers to see their roles pre­served in as­pic when they should be re­train­ing and look­ing else­where?

As the end of the fur­lough ap­proaches on Oct 31, ex-chan­cel­lor Sa­jid Javid has been clear that the fur­lough scheme should end. Philip Ham­mond, a suc­cess­ful busi­ness­man be­fore pol­i­tics, mean­while, raises ghosts such as Bri­tish Ley­land when he warns against “throw­ing good money af­ter bad” with a re­turn to Seven­ties-style bailouts. He says: “The Trea­sury wis­dom painfully learned through the Seven­ties and Eight­ies is that when in­dus­tries need to re­struc­ture, you need to recog­nise that. The longer you de­lay, the more pub­lic money you pour into try­ing to pre­tend that failed busi­nesses are vi­able and un­em­ployed peo­ple are ac­tu­ally em­ployed, the more dif­fi­cult it is to ac­tu­ally re­cover. Many of the peo­ple shaken out of the labour mar­ket in the Eight­ies never worked again be­cause they were trapped in non-vi­able in­dus­tries for 15 years.”

In his view, sec­tors like avi­a­tion and hos­pi­tal­ity will need to be­come struc­turally smaller in re­sponse to the pan­demic and its af­ter-ef­fects – even if the com­par­i­son of the con­se­quences of Covid-19 with the tra­vails of Seven­ties Bri­tain is a lit­tle ex­treme. Ley­land was af­ter all blighted by a lack of in­no­va­tion, fierce com­pe­ti­tion and mil­i­tant unions, be­fore the oil cri­sis and soar­ing in­fla­tion fin­ished it off. When min­is­ters have en­forced the shut­down of much of the econ­omy and are com­pelling bars and restau­rants to op­er­ate un­der con­tin­ued re­stric­tions, it is also too early to make de­fin­i­tive judg­ments on struc­tural shifts. I heard one ex­am­ple of a wed­ding DJ who hasn’t worked since mid-March, when around 250,000 cou­ples a year get mar­ried in the UK. To sug­gest those wed­dings will never come back due to fac­tors like so­cial dis­tanc­ing and that a £10bn a year in­dus­try has been blighted for good feels far too sweep­ing at this stage. The ques­tion re­ally hinges on when a vac­cine even­tu­ally emerges.

But if the hawks win out – and Su­nak him­self has been clear that he doesn’t want to give “false hope” to the 3m-plus peo­ple still fur­loughed – then clearly the job re­ten­tion scheme has to fin­ish to aid the UK’s eco­nomic re­mod­elling. The prob­lem is that em­ploy­ers are still re­luc­tant to hire.

Last week’s jobs fig­ures showed va­can­cies at barely half their pre-Covid lev­els.

It’s here that the Chan­cel­lor should take a leaf out of the Don­ald Trump play­book and find a mid­dle way to pre­vent the prospect of throw­ing three mil­lion or more work­ers into penury. The US did not use a fur­lough and in­stead paid a flat-rate $600 (£469) a week in emer­gency ben­e­fits to work­ers un­til the end of July. Democrats and Repub­li­cans are still fight­ing in Congress over a per­ma­nent re­place­ment af­ter Trump an­nounced a tem­po­rary stop­gap, and Repub­li­cans in par­tic­u­lar voiced con­cerns over an emer­gency mea­sure that paid two thirds of claimants more than their pre­vi­ous salary. That said, the gen­eros­ity did not de­ter 10m from go­ing back to work be­tween May and Au­gust, in­clud­ing some 3.6m typ­i­cally lower paid bar and ho­tel work­ers who might have been bet­ter off sit­ting on ben­e­fits. The pay­outs, af­ter all, were tem­po­rary. Ac­cord­ing to the Chicago Booth School of Busi­ness’s panel of eco­nomic ex­perts – in­clud­ing more than a few No­bel win­ners – “em­ploy­ment growth is cur­rently con­strained more by firms’ lack of in­ter­est in hir­ing than peo­ple’s will­ing­ness to work at pre­vail­ing wages”.

If Su­nak re­ally wants to regear the post-Covid UK and al­low eco­nomic evo­lu­tion to take its course, then he should break the link be­tween em­ploy­ers and their fur­loughed staff. Mov­ing Trump-style to mas­sively en­hanced uni­ver­sal credit pay­ments, with top-ups linked to re­train­ing, frees up “em­ployed” work­ers and gives them some mea­sure of fi­nan­cial sup­port through a harsh eco­nomic win­ter.

Hence it fol­lows that the Chan­cel­lor won’t need his £1,000 fur­lough bonus any more. The Of­fice for Bud­get Re­spon­si­bil­ity has al­ready pen­cilled in an ex­tra £13bn in ben­e­fit pay­outs over the next five years, most of which is ac­counted for by the ex­tra UC cash. That could be topped up with the £9.4bn es­ti­mated cost of the job re­ten­tion bonus, and more be­sides, for a year.

On the other hand, em­ploy­ers could be in­cen­tivised to take on staff through cuts to their na­tional in­sur­ance con­tri­bu­tions and other tax breaks. Many of those laid off might use the fi­nan­cial breath­ing space to start busi­nesses of their own; and there’s noth­ing to stop our wed­ding DJ start­ing up again next year if the pan­demic eases.

If a vac­cine was close, some kind of sec­toral fur­lough would be more at­trac­tive, even with the at­ten­dant risks of govern­ment mi­cro­manag­ing in­di­vid­ual parts of the econ­omy.

But if one is un­avail­able un­til mid-2021 as most ex­perts sug­gest, Su­nak needs a new strat­egy. A resur­gent virus, and the fresh eco­nomic pain it will bring, gives him the po­lit­i­cal cover to ex­tend the fur­lough if he chooses.

But do­ing “the right thing” for the fu­ture of the econ­omy should per­haps push the Chan­cel­lor down a harder road. I don’t envy him the choice.

‘Su­nak should take a leaf out of the Trump play­book and find a mid­dle way’

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