Sunak walks the line
“The Government has made serious, lethal mistakes during the pandemic,” said The Guardian. But its job retention scheme is “one thing it got right”. The scheme, unveiled by Chancellor Rishi Sunak in March, is paying 80% of the wages of 7.5 million workers – about a quarter of the workforce – up to £2,500 per month. It is estimated to cost £14bn a month, but “rarely has money been better spent”. Sunak has ensured “that economic catastrophe did not follow hard on the heels of a public-health emergency”. Without the scheme, we’d now have unemployment on a scale not seen since the 1930s; in the US, which has no equivalent, 20 million people lost their jobs in April alone. So Sunak’s announcement this week, that the scheme will be extended for a further four months from the end of June to the end of October, was good news. From August, it will be sensibly modified so that employees can return part-time, and employers can contribute to their pay. But furloughed workers are “safe for now”.
On the contrary, the announcement was “ominous”, said Alex Brummer in the Daily Mail. There has been no shortage of “grim economic news” recently: the Bank of England, for instance, has forecast a “downturn steeper than anything since 1706”. Even so, Sunak’s decision came as a “body blow”, suggesting as it does a “meltdown” far worse than previously imagined, with no immediate prospect of recovery. The danger is that extending the furlough scheme merely delays inevitable “adjustments to a changed economy”. British Airways is making 12,000 of its 42,000 staff redundant. That may seem harsh, but arguably it is just realistic. Other, “perhaps more cynical employers, would rather keep staff on furlough, with taxpayers picking up the bill”, than make such hard but necessary decisions. You don’t need to be an economist to appreciate the vast cost to the public purse, said Gordon Rayner in The Daily Telegraph. The Treasury has estimated that its budget deficit by the end of the year is likely to reach £337bn (up from £55bn forecast before the virus). It has already proposed a “menu” of tax rises and spending cuts to make up the shortfall.
“Sunak is walking a tightrope,” said Philip Aldrick in The Times. Take the scheme away too late, and the cost to public finances will be “unbearable”. But pull support too soon, and “he risks mass unemployment”. Big job losses seem inevitable, said Robert Shrimsley in the FT. The furlough is a form of “masked unemployment”. The Office for Budget Responsibility predicts two million people will lose their jobs when it is unwound. There has been much talk about the shape of the recession, said David Smith in The Times. Will we see a V-shaped recovery, a W, a U, or even an L? Looking at the economic record, the good news is that almost all UK recessions are V-shaped. The bad news is that almost all created “hangovers” in the labour market – and many lasted “for a very long time”.