A million could lose jobs despite Sunak’s subsidies

Jobless totals tipped to reach post-2008 crash levels even following Chancellor’s wage package

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ALMOST a million jobs could be lost as a result of coronavirus despite Rishi Sunak’s vast wage subsidy scheme, experts have warned.

Economists are braced for hundreds of thousands of job losses which could push unemployment from the current 3.9 per cent close to the 8 per cent seen in the aftermath of the financial crisis.

The jobless count – now 1million – peaked at 2.5million in early 2010.

John Philpott, a labour economist at the Jobs Economist consultancy, said: “A million job losses looks virtually certain, but I worry it won’t be much lower even with some kind of generous wage subsidy. As each day goes by, the scale of the demand hit starts to look worse, so I fear that even a good policy response will face a mighty headwind.”

David Page, chief economist at AXA Investment Management, said: “Authorities are working hard to avoid an adverse scenario in the labour market, but a move towards 8 per cent isn’t something you would rule out given the unprecedented nature of the shock.”

Meanwhile, the Chancellor has been warned his unprecedented support package for workers could have unintended consequences. Mr Sunak pledged on Friday to pay up to 80 per cent of wages and £2,500 per month to staff not working to keep them in their jobs. The support package will be available to workers through the Treasury’s Coronavirus Job Retention Scheme, which is expected to be up and running within weeks.

However, the Institute for Fiscal Studies has warned that it could encourage businesses to temporarily lay off staff. “This policy gives a very clear incentive to furlough half of them and keep half of them on full time,” said Paul Johnson, the influential think

‘The scale of the demand hit looks worse every day and I fear that even a good policy response will face a mighty headwind’

tank’s director. He added the policy had clearly been “designed in haste” and would be difficult to police.

If 10 per cent of Britain’s workforce is hit, the measures would cost around £10billion over three months, the IFS calculated. Experts also warn job losses will be exacerbated by the severe impact on staff-intensive consumer-facing industries against the backdrop of an economy facing double-digit declines in the next quarter.

“Leisure, retail and travel will bear the brunt,” said Neil Shearing, chief economist at Capital Economics.

Following Mr Sunak’s rescue package, Capital revised down its estimate of the unemployment rate spike to 6 per cent – although a rise to this level would still entail around 600,000 job losses.

Economists at JP Morgan suggest there have already been around 80,000 redundancies in the UK as a result of the outbreak.

The closure of schools across Britain is expected to deal another blow to the economy as millions of workers are forced to look after children.

More than 2million people, or 6 per cent of the workforce, are likely to be put out of action to take care of children, according to Samuel Tombs, economist at Pantheon Macro. He called the closures a “game-changer for labour supply” that will “greatly increase the economic damage”.

Economists have delivered huge downgrades for the UK economy in the past week, with Wall Street analysts predicting an annual hit even greater than the financial crisis.

Morgan Stanley warns that GDP will tumble 5.1 per cent in 2020 after a deep recession in the first half of the year.

A strong second half rebound would not prevent the worst recession in a century.

Efforts by governments to mitigate the economic fallout of the outbreak are expected to push deficits to levels last seen during the financial crisis.

Andrew Wishart, economist at Capital Economics, warned the UK deficit will widen to at least 8 per cent of GDP in 2020-21 as tax receipts plunge and the government props up workers and businesses.