At first glance the Chancellor’s latest economic package looks economically rational and socially supportive, but it may contain a flaw, which risks undermining his admirable intent.
Macro-economics
The Chancellor is presiding over the largest budget deficit in peacetime, and wishes to improve the budgetary position[i]
Although the UK is spending generously, it is not spending as much as a share of GDP as other large economies, such as the US, Germany or Japan[ii]. However a number of countries are being more iterative in their responses, and the UK appears to be following this path.
The furlough scheme is hugely expensive, and arguably inefficient
The new “Job Support Scheme” (JSS) (no longer the “Job Retention Scheme”) is modelled upon the German “Kurzarbeit” scheme, which has a proven track record[iii]
The JSS will last for 6 months, and is intended to shift some of the responsibility for supporting employment from the taxpayer to the corporate sector[iv]
Universal Credit payments at the current enhanced level are not being extended beyond March 2021[v]
Separately the Government has substantially increased funding for the NHS, vaccinations and testing
Micro-economics
“Viable jobs” as opposed to jobs which won’t exist in the future are the focus of the shift in policy. An admirable intention
Its focus is upon smaller businesses which are the main source of job creation
It fails to protect jobs which are viable outside a lockdown, such as those in hospitality, sport and the arts
It extends but reduces support for the self-employed
It does not address the need for retraining for jobs of the future
It is generous to employees, and in line with schemes elsewhere[vi]
The Employers’ Conundrum
The JSS supports employees more than employers[vii]. The German Kurzarbeit scheme is funded to a higher level by the government, rather than employers, and is running for 21 months.[viii]
Employees will receive less, but employers will pay more
The Likely Outcome
The failure to support jobs which are viable outside a lockdown, the lack of support for the self-employed, and the design fault within the JSS suggest that unemployment will rise sharply later this year and early next year
More to Come?
It seems inevitable that we shall hear more from the Chancellor in the weeks ahead, and he appears to have suggested as much.
Although the JSS has the backing of the CBI, further support for sectors which are viable in normal conditions and for the self-employed is clearly required. Given the Chancellor’s focus upon jobs which are viable for the future it would be surprising if we did not hear more about retraining.
Rishi Sunak worked in the City and is abundantly aware of the current low cost of debt and the need to invest in a sustainable economy. This could create many new jobs. The shift to “viable” jobs may be a forerunner to investment in the jobs of the future.
We hope that such investment will balance investment in renewable energy with the need to protect the environment and nature, and the popular shift to more locally sourced food. More active and creative use of brownfield sites should be encouraged. What has happened to the tree planting promises?
Care homes will need protecting from the new surge in infection rates, and it is to be hoped that they will be given support.
The Chancellor has shown flexibility, creativity and boldness so far in his short public life, and it is to be hoped that he continues in this vein.
