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The bad economic news is something we have had to get used to in the past two months, but yesterday was something of a hard blow.
Chancellor Rishi Sunak’s announcement that he would extend the job retention scheme through October is the most sinister of all the bailout amendments and additions to the economy since the shutdown began on March 23.
As welcome as it is to employers and the 7.5 million jobless workers taking advantage of the largest job subsidy in British history, it betrays deep-seated fear in Whitehall and across the business of the extent of the damage, now and for longer. term: being inflicted by the pandemic.
The hugely costly decision to convert an emergency measure, designed to see UK Plc at the peak of Covid-19, into a compromise that could extend to six months suggests a public health crisis and a much worse economic collapse than what is expected. had imagined.
Chancellor Rishi Sunak announced that the government licensing plan will run until October instead of the planned June deadline.
It also increases the acute danger that large sections of the workforce on leave lose any sense of work ethic.
Predictors from the Office of Budgetary Responsibility (OBR) and the Bank of England have not neglected their assessment of the impact of Covid-19 on domestic production.
The OBR projects a catastrophic drop of 35 percent in the current second quarter of the year. And the Bank has projected a recession more pronounced than anything else since its records began in 1706.
But both organizations “turned pink” on the aftermath with suggestions that, with adequate budget support, there would be a so-called V-shaped recovery with output rising by up to 15 percent in 2021.
Sunak’s statement suggests otherwise.
Keeping as many workers on payrolls as possible, with up to 80 percent of guaranteed wages up to £ 2,500 per month, was the right thing to do if the intention was to get all companies out of hibernation before summer.
By extending it to October, the government appears to be accepting that the pandemic is far from over, while its 60-page ‘road map’ released Monday makes it clear that it will be a couple of months at least before the retail sale, the hospitality and travel. and the leisure sectors begin to open up.
The extension also recognizes that making factories, offices and stores “safe” workspaces will be enormously difficult, especially for smaller companies.
As a critical part of Britain’s service-dominated economy, UK-based airlines can be expected to be grateful for the licensing plans.
But they have recognized faster than most that life after Covid-19 will never be the same.
Rather than holding unwanted personnel without permission, British Airways is causing 12,000 (out of 42,000) to be fired.
As harsh as their actions are, airlines are simply being realistic. They are taking steps now to survive in the post-Covid era.
Other less robust and perhaps more cynical employers would rather keep staff on extended leave, with taxpayers picking up the bill, than making tough but ultimately unavoidable decisions.
A FTSE-100 president, with 130,000 employees worldwide, told me that the group had planned large-scale layoffs, but after taking advice, decided to place the workers on leave, until the plan runs out, in instead of facing political protest for large layoffs.
The license extension at least offers a short-term flash of light to the £ 70 billion hotel industry, which warned that 50 percent of staff would have to be laid off by the end of June if the license had not been extended. .
Clearly, the end of the “cliff edge” license on June 30 was a dangerous prospect, and companies and workers who wean government aid were always going to be painful.
The big danger, however, as the Thatcherite think tank from the Institute of Economic Affairs warns, is that all the extended licensing plan does is “delay readjustment to a changed economy.”
By stretching the scheme, the risk is to create a less competitive and less fit for purpose economy of a global Britain outside Europe.
Furthermore, one cannot underestimate the risk to the stability of public finances of extending the license plan, which has already cost the public portfolio £ 10 trillion, is now likely to rise to around £ 70 trillion, equivalent to the half of the annual NHS budget.
Some might argue that this is a small price to pay in “wartime” to keep the economy together, that long-term interest rates are at an all-time low, and that loans can be paid over time.
But the permit is only part of a rescue plan where eventual bills could reach hundreds of billions.
Expanding the scheme may ease the agony of a depression, but it will do little to encourage a robust recovery in output, employment and income.
