Furlough scheme could widen UK inequality warns think tank

Almost half the cost of the government’s Covid-19 furlough scheme will be spent on rent and debt repayments, amounting to an implicit bailout of landlords and banks, according to the analysis of three economists.

In a new paper from the IPPR think tank, Christine Berry, Laurie Macfarlane and Shreya Nanda say inequality could be widened by the furlough scheme as families in upper pay brackets who are still able to work are likely to be spending less and saving more, while low-income families on furlough will be gradually racking up further debt.

They calculate that up to 45 per cent of the net cost of the furlough scheme will be spent on rent and debt repayments to landlords, banks and other lenders, amounting to £10 billion under a three-month shutdown, and £21 billion for six months.

As a result they call for short term measures to spread the financial burden of the economic fallout of tackling the coronavirus, including ending “no fault” evictions; a possible freeze on rent, debts and bills for some struggling households, without new debts accruing; the capping of interest rates on the state-backed portion of new business loans at 0 per cent or 0.5 per cent, as in Switzerland; and a ban on dividends and share buybacks so government support for large businesses does not indirectly subsidise shareholders and highly-paid executives.

More long term measures they say could include higher taxes on wealth, land ownership or excess profits, and retrospective write-downs of debts built up by individuals during the crisis.

The authors also propose taking advantage of the low RBS share price to bring the bank into full public ownership.

Carys Roberts, IPPR’S Executive Director, said: “The research shows that while millions of people across the country are seeing a hit to their incomes, the government is under-writing the income of banks and landlords without any obligation to take a similar hit. That amounts to an implicit bailout.

“We mustn’t repeat the mistakes of previous crises, by asking those least able to weather the crisis to make the greatest sacrifices. The economic risks and costs of the shutdown should be shared fairly across society.

“The government must urgently ensure that its programme of support is protecting those who need it. And as we emerge from this crisis, it will be critically important to rebuild a fairer economy, with those whose incomes have been protected contributing more.”