The current Coronavirus crisis could turn out to be the biggest economic shock that the world has ever encountered. Circumstances have led the Chancellor of the Exchequer, Rishi Sunak, to introduce a set of measures to help prepare the British economy for an indeterminate, and expensive, period of sustained economic inactivity-the result of mass quarantine and social distancing. The government’s fiscal stimulus has been outlined in successive announcements by Sunak, on 17, 20 and 26 March. Repeated references to “whatever it takes” and “whatever it costs” have been backed up by the staggering dimensions of the proposed bailout. These “right measures at the right time” come with the apparent backing of both business leaders and the trade unions. This “public bailout” has an impressive initial price tag of £330 billion, equivalent to 15 per cent of the UK’s GDP. .
The diverse nature of the British workforce has mandated different solutions, tailored to the particular circumstances and specific needs of different categories of workers, as well as those currently jobless. The present crisis has revealed the fragile economic circumstances of a significant proportion of the workforce. Low wages, a lack of savings, high personal outgoings and job insecurity have led to a state of relative poverty for many, with people living from day to day, especially vulnerable from even short periods of time without an income. The current bailout has, indeed, become a matter of survival for many families and individual workers in an increasingly unequal society.
First of all, those workers already in employment, but temporarily laid off, have had their jobs protected through a wage subsidy package. The Coronavirus Job Retention Scheme will provide 80 per cent of “furloughed” worker’s wages, up to a monthly maximum of £2,500- a figure which is close to the median salary in the UK. These taxable grants have been backdated to 1 March, and will be made available for three months, or longer if needed. To be eligible, employees must belong to a PAYE (Pay As You Earn) scheme, allowing them to be reimbursed directly by HMRC. Potentially solvent firms can thereby avoid redundancies in those workers they cannot afford to currently pay. These employees can then be re-employed once the economy begins to recover. In the meantime, these grants can make up for lost earnings, being further topped up by the employer whenever possible.
The self-employed, currently numbering around 4.8 million in the UK, face a particular challenge at a time of enforced economic inactivity. Some, such as barristers on six-figure salaries and high-profile rock stars, are likely to come out of the crisis relatively unscathed. Much larger number of self-employed people are, however, on low wages, living in precarious circumstances. Plumbers, electricians, painters and decorators, taxi drivers, couriers, driving instructors, hairdressers, domestic helpers, child minders, builders, window cleaners, actors, musicians-the list goes on. Minimum wages, sporadic employment and zero-hour contracts have created a new underclass- those most likely to feel the brunt of an inevitable economic downturn.
The self-employed have, to start with, been given access to Universal Credit, to receive the princely sum of £94.25 a week (a rate equivalent to Statutory Sick Pay), and the Minimum Income Floor (based on expected earnings per month) has simultaneously been suspended. In addition, the Universal Credit “standard allowance” has been increased by £1,000 a year for the next 12 months. In a later move, on 26 March, those self-employed, able to produce a tax return for 2019, have been allocated 80 per cent of their average monthly profits over the preceding three years, under a newly announced Self-Employed Income Support Scheme. This means-tested (profits of £50,000 and under after tax) and “targeted” £9-billion initiative clearly disadvantages those who do not regularly file tax returns, those who have taken career breaks, and those only recently employed, among many others.
Fixed-term loans and overdrafts, rather than grants, of up to £5 million, have been promised, under the Coronavirus Business Interruption Loan Scheme, to solvent small- and medium-sized businesses, to provide short-term liquidity and thereby avert cash flow problems. Borrowers will be liable to pay interest on these loans to accredited lenders, although they will be interest-free for the first 12 months. Further support to businesses comes from the deferral of VAT payments to July, alongside a year-long business rates holiday.
Any immediate problems are likely to be caused by administrative delays, leading to immediate financial hardship for many. It has become clear that, for many, even a month of waiting is far too long and that cash loans are needed much sooner. There is a high likelihood that economic insecurity may lead to mental distress in those people less equipped to cope with the effects of sudden economic malaise. The anticipated delay in receipt of benefits means that bridging support, in the form of Universal Credit, will often be needed, in order to buy time. Regrettably, it seems that many British people will inevitably experience the sharp pains of the economic shock caused by Covid-19.
Ashis Banerjee