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
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”.