Su­nak’s spend­ing spree is aimed at pro­tect­ing jobs

Western Daily Press - - Business - This ar­ti­cle first ap­peared on the web­site www.the­con­ver­sa­

CHAN­CEL­LOR Rishi Su­nak’s sum­mer state­ment this week was in­tended to show how the gov­ern­ment can quickly end its emer­gency bankrollin­g of the econ­omy, and let a re-en­er­gised pri­vate sec­tor take the strain again.

Since the lock­down was im­posed in March, a fur­lough scheme has al­lowed shut­tered firms to re­tain up to 9 mil­lion idled em­ploy­ees – over one-third of the work­force – at an Ex­che­quer cost so far of £60 bil­lion.

When the fur­lough scheme ends in Oc­to­ber, Mr Su­nak has an­nounced that it will be re­placed by a £1,000 bonus for each em­ployee re­tained un­til Jan­uary 2021, at a max­i­mum cost of £9 bil­lion. There is also the ad­di­tion of a £2 bil­lion work place­ment scheme, to open up jobs for the 700,000 school and univer­sity leavers un­able to find one.

Amid a cri­sis that has high­lighted the im­por­tance of pub­lic sec­tor work­ers, and could well trig­ger a deep re­ces­sion, the gov­ern­ment’s over­whelm­ing con­cern is to pre­vent a jump in un­em­ploy­ment as the fur­lough scheme is wound down be­tween Au­gust and Oc­to­ber. The OECD is fore­cast­ing that the UK is head­ing for one of the high­est rates in Europe – po­ten­tially ris­ing five­fold to al­most 15 per cent if there is a se­cond wave of coron­avirus.

The OECD also fore­cast in June

The Chan­cel­lor goes all out to pro­tect jobs, leav­ing pub­lic fi­nances for another day, says Alan Ship­man, lec­turer in eco­nomics at the Open Univer­sity

that the UK could see a GDP de­cline of more than 11 per cent for 2020, made worse by other in­dus­trial economies ex­pe­ri­enc­ing a sim­i­lar slump. There had been hopes of a V-shaped UK re­cov­ery, spurred by an up­beat com­ment on May’s con­sumer spend­ing data by the Bank of Eng­land chief econ­o­mist, Andy Hal­dane.

But the ini­tial bounce­back in sales may have been boosted by a one-off spree with the sav­ings that peo­ple ac­cu­mu­lated dur­ing lock­down. And if the V’s up­ward slope stops even slightly short of its down­ward slope, there will still be a painful short­fall in out­put and em­ploy­ment.

The fact is that the UK bud­get deficit is soar­ing, lift­ing to­tal pub­lic debt above 100 per cent of GDP for the first time since the early 1960s (when wartime debts were still be­ing paid down). Yet the gov­ern­ment’s judg­ment is that it has to keep up the emer­gency spend­ing, even as rev­enues fall sharply, un­til a firm re­cov­ery in pro­duc­tion and em­ploy­ment is un­der way.

In­deed, the sum­mer state­ment was no­table for its con­tin­ued fo­cus on ex­tra out­lays; other new mea­sures to boost the econ­omy in­clude a tem­po­rary VAT cut for the hos­pi­tal­ity in­dus­try from 20 per cent to 5 per cent (costed at £4 bil­lion), and a nine-month sus­pen­sion of stamp duty on house pur­chases below £500,000 (re­mov­ing at least another £1 bil­lion in tax).

There is to be a Eat Out to Help Out scheme of­fer­ing gov­ern­ment sub­sidised 50 per cent dis­counts in restau­rants in Au­gust, plus vouchers to help peo­ple pay to make their homes more en­ergy ef­fi­cient. The new mea­sures add another £30 bil­lion to the £175 bil­lion of ex­tra spend­ing (and £130 bil­lion of ex­tra bor­row­ing) an­nounced in March.

As when Mr Su­nak an­nounced the first round of gov­ern­ment sup­ports in March, the dif­fi­cult task of rais­ing taxes or cut­ting other ex­pen­di­tures to lessen the in­crease in the deficit has been left to the more de­tailed bud­get an­nounce­ments due in the au­tumn – or even later.

The task of keep­ing peo­ple in work has been made more dif­fi­cult by ev­i­dence that many firms were al­ready “hoard­ing” labour be­fore the pan­demic, with some only stay­ing in busi­ness be­cause of record low in­ter­est rates. This was a re­flec­tion of over ten years of min­i­mal growth in work­force pro­duc­tiv­ity, which ground to a halt af­ter the global financial cri­sis of 2007-09.

The new work place­ment scheme – pay­ing em­ploy­ers for up to six months to take on young work­ers – has been likened to the Fu­ture Jobs Fund launched by Gor­don Brown’s gov­ern­ment af­ter the financial cri­sis. A closer par­al­lel may be the Youth Train­ing Scheme with which the Thatcher gov­ern­ment kept school leavers in jobs while all around them were los­ing theirs in the 1980-81 re­ces­sion.

While Thatcher won re-elec­tion two years later with un­em­ploy­ment still around 3 mil­lion (over 10 per cent of the work­force at that time) and ris­ing, to­day’s Con­ser­va­tive gov­ern­ment is keen to win over the largely anti-Brexit youth vote, and does not want to run the same risk.

Mr Su­nak’s “what­ever it takes” growth-boost­ing con­trasts sharply with the im­me­di­ate spend­ing re­straint and tax in­creases that the Con­ser­va­tive-Lib­eral Demo­crat coali­tion deemed es­sen­tial in 2010 af­ter the financial cri­sis. Boris John­son has al­ready sig­nalled there will be no re­turn to “aus­ter­ity”, even though the pub­lic debt to GDP ra­tio is now sub­stan­tially higher than ten years ago.

This is partly a recog­ni­tion of vot­ers’ un­will­ing­ness to see the pub­lic sec­tor cut again. It also re­flects lin­ger­ing doubt about whether aus­ter­ity re­ally worked, since it did not close the bud­get deficit by the 2015 tar­get date (or even 2020), and may have left the health and so­cial care ser­vices un­der­pre­pared for Covid19. It also re­flects an un­prece­dented con­fi­dence that the gov­ern­ment can con­tinue to run up new debt for some time, with­out the usual penal­ties of ris­ing in­ter­est rates, higher in­fla­tion and a de­pre­ci­at­ing pound.

Mr Su­nak isn’t nec­es­sar­ily a con­vert to the idea of mod­ern mon­e­tary the­o­rists that econ­o­mists in the past ex­ag­ger­ated the con­straints on pub­lic spend­ing, un­der­play­ing gov­ern­ments’ ca­pac­ity to bor­row with­out squeez­ing re­sources from the pri­vate sec­tor. But he’s re­alised it may be pos­si­ble to keep spend­ing and bor­row­ing at near-zero cost for sev­eral more months (even years) to stim­u­late re­cov­ery, not least be­cause so many other coun­tries are hav­ing to do the same thing.

Chan­cel­lor of the Ex­che­quer Rishi Su­nak de­liv­ers his sum­mer state­ment in the House of Com­mons

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