The new nor­mal: 340,000 jobs saved but 2.7m may still face dole

The Chan­cel­lor’s £5bn pack­age has just moved the cliff-edge to Jan­uary, warns think tank chief

The Daily Telegraph - Business - - Coronaviru­s: Sunak’s Winter Economy Plan - By Tim Wal­lace

RISHI SU­NAK’S new sup­port plans for busi­nesses and work­ers will cost up to £5bn, econ­o­mists es­ti­mate, pro­pel­ling the record bud­get deficit to new heights.

How­ever, in terms of monthly spend­ing this marks a sig­nif­i­cant cut from re­cent lev­els of stim­u­lus. It is ex­pected to save around 340,000 jobs, but un­em­ploy­ment is still pre­dicted to dou­ble to around 2.7m.

The Job Sup­port Scheme (JSS) is es­ti­mated to cost around £300m per month per mil­lion work­ers us­ing it. The Ex­che­quer will pay a max­i­mum of just be­low £700 per per­son per month, with the av­er­age pre­dicted to be un­der half that amount. By con­trast, fur­lough of­fered up to £2,500.

Stephen Evans, chief ex­ec­u­tive of the Learn­ing and Work In­sti­tute, es­ti­mates up to 3m peo­ple could use the JSS. That is made up of the cur­rent 3m on fur­lough, some of whom will lose their jobs when the scheme ends next month, while other work­ers will have to go part-time and so can use the new set-up. That would re­sult in a bill of £900m per month for the Trea­sury.

Novem­ber’s self-em­ploy­ment grant is ex­pected to cost around £1.3bn, po­ten­tially with a re­peat in Fe­bru­ary. Over £6bn was paid out in both May and Au­gust.

These also de­pend on take-up, the num­ber of hours worked and the wages of those be­ing of­fered the sub­si­dies.

The ex­tended VAT cut for hos­pi­tal­ity and tourism amounts to around £800m ac­cord­ing to Su­nak.

De­lay­ing loan scheme re­pay­ments will also add to the bill. Ruth Gre­gory at Cap­i­tal Eco­nomics es­ti­mates the to­tal at £5bn, while econ­o­mists at Citi think £4bn is more likely.

These are big num­bers for any “nor­mal” pol­icy in­ter­ven­tion, but rel­a­tively small in the con­text of 2020.

Once fall­ing tax rev­enues are in­cluded, Gre­gory es­ti­mates the bud­get deficit will hit £370bn this fi­nan­cial year. The peak deficit in the fi­nan­cial cri­sis was a mere £158bn.

The key pur­pose is to save jobs, fo­cus­ing the sup­port on work­ers whose po­si­tions are likely to be vi­able in the long-run, but which could be lost with­out ex­tra cash now.

The good news is that econ­o­mists think the lat­est schemes will save hun­dreds of thou­sands of jobs. The bad news is that this is only a small pro­por­tion of the jobs un­der threat.

Be­fore these mea­sures were in­tro­duced, Howard Archer at the EY Item Club es­ti­mated that un­em­ploy­ment would peak at 8.5pc in early 2021. Now he thinks the top will be 7.5pc, in the sec­ond quar­ter of next year.

That gap is equiv­a­lent to around 340,000 jobs. Dou­glas McWilliams at the Cen­tre for Eco­nomics and Busi­ness Re­search makes a sim­i­lar es­ti­mate, pre­dict­ing a peak of around 8pc at the end of this year in­stead of 8.9pc.

This is still a dou­bling of un­em­ploy­ment from the start of 2020, how­ever, in­di­cat­ing that around 2.7m peo­ple will be out of work, up by al­most 1.4m.

This is a dy­namic pic­ture, in part be­cause of ris­ing Covid-19 in­fec­tion lev­els and mea­sures taken to re­strict its spread. Gre­gory sus­pects this week’s re­stric­tions could out­weigh the pos­i­tive ef­fects of the spend­ing mea­sures on the econ­omy.

The in­ter­lock­ing sup­port schemes also bring risks. Un­der the new JSS, an em­ployer has to pay more than half of a worker’s usual wage for just one-third of their usual hours, which might seem like a bad deal for the boss.

Some of this is mit­i­gated by the Job Re­ten­tion Bonus, which will pay £1,000 per fur­loughed em­ployee who has been taken back on.

But once that is paid in Jan­uary, em­ploy­ers may lay off staff any­way.

“The Job Sup­port Scheme will help to stem some of the rise in un­em­ploy­ment this au­tumn. But de­sign flaws mean that, de­spite ex­ist­ing un­til April, it has re­ally only moved the jobs cliff-edge from Oc­to­ber to Jan­uary,” says Torsten Bell at the Res­o­lu­tion Foun­da­tion.

“The Chan­cel­lor would have been bet­ter to scrap the ex­pen­sive Job Re­ten­tion Bonus and use the money saved to cre­ate a gen­uine short-hours work­ing scheme that would keep many more work­ers in jobs over the dif­fi­cult months to come.”

How­ever, Bank of Eng­land Gov­er­nor An­drew Bai­ley gave his back­ing to the lat­est fis­cal boost for the econ­omy, say­ing pol­i­cy­mak­ers needed to use their tools “ex­pan­sively and ag­gres­sively”.

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