Britain is in for a long, hard winter. That came across loud and clear from Rishi Sunak as he announced new steps designed to prevent unemployment from breaking postwar records over the coming months.
Much of what the chancellor had to say was familiar. This is an unprecedented crisis. Curbs on economic activity are needed to cope with the Covid-19 pandemic. If the state is hurting businesses through lockdown and other restrictions then it has a duty to help.
Since life will not return to normal before next spring at the earliest, Sunak has been forced to extend the financial support provided by the government, albeit on less generous terms than has been the case up until now.
The aim of the job support scheme, the extension of the VAT holiday for the hospitality and tourism sectors and the help for businesses with their cashflow was simple: to get the economy through to next spring without a tsunami of job losses.
The snap judgment from experts was that the winter package would temper the increase in joblessness but little more than that.
Sunak has said repeatedly throughout the pandemic that he is not going to be able to save every job and many of those who have been on furlough since March are going to have their jobs made redundant in the coming months.
The chancellor said it was time to move on from a blanket support to a more targeted approach in which the government tried to save viable jobs. There are two issues here. The first is that many jobs that are currently furloughed would be viable under normal economic conditions. Theatres in London’s West End are closed because the government has said it is not safe for them to open, not because they are unviable.
The second issue is that employers have to make a much bigger contribution to the job support scheme than they did to the furlough scheme – and many of them are likely to decide that they can’t afford to keep workers on.
In October, the final month of furlough, businesses will be paying 20% of an employee’s salary and Sunak 60%. From November, the company pays a minimum of 55% and the Treasury a maximum of 22%.
Ruth Gregory, a UK economist at the consultancy Capital Economics, also makes the point that under the furlough scheme, employees are being paid for not working at all, while under the new scheme they will have to work at least one-third of their normal hours. Gregory expects unemployment, currently 4.1%, to rise to 7% by the middle of next year.
That is probably as good an outcome as Sunak could hope for. He said at a press conference following his speech that he had provided incentive for firms to keep people on the payroll, but thinktanks noted there is also an incentive for struggling firms to reduce a worker’s hours or make them redundant. Sunak declined to make a forecast for how high unemployment will go.
Yet, the tone of his speech – with its talk of living without fear – suggests he knows full well how damaging the tougher restrictions imposed this week could be for the economy and that he will push back hard in cabinet against any further tightening.
The Treasury has committed about £200bn to dealing with the fallout from Covid-19 and is getting nervous about the cost. But reining in spending depends on progress in fighting the pandemic and Sunak said he would offer more support if it proved necessary.
Judged by the experience of the past six months, it will be.
