The British economy is beginning to “reopen” in the wake of the Covid-19 pandemic. The next steps in this process of recovery were recently outlined by Rishi Sunak, Chancellor of the Exchequer, in his Summer Economic Update. His ‘Plan for Jobs’ was officially launched in the House of Commons on 8 July 2020, although some elements of the plan had already been leaked out to certain sections of the press. The second phase of the government’s recovery plan followed the Chancellor’s Spring Budget of 11 March, and is expected to be followed by an Autumn Budget. This strategy of continuing fiscal support in the form of massively increased government spending, to the tune of £30 billion, has received some guarded political and public support, but with important caveats, and in the face of some reservation.
These are difficult times. Sharp reductions in the production of goods and in the provision of services have led to a steep decline in the nation’s GDP. This severe and, likely to be protracted, economic contraction inevitably demands bold and comprehensive measures. As the lockdown is gradually being eased, the overriding aim is to kickstart productive economic activity, while simultaneously cutting back on those areas of government spending felt to be unaffordable if continued for much longer.
The recovery plan has targeted sections of the economy that have been particularly badly affected by the pandemic. The hospitality, accommodation, and attractions sectors together employ around two million people in the UK, many of whom are young, female, belong to ethnic minorities, or are based in coastal communities. With the reopening of the hospitality sector (cafes, bars, pubs, restaurants, private caterers), accommodation facilities (hotels, bed and breakfast establishments, campsites and caravan sites), and entertainment venues and other public attractions (theatres, cinemas, theme parks, zoos) comes the need to lure back customers as well as to attract new custom. Social consumption-spending on eating and drinking out, entertainment, and tourism- currently accounts for around one-fifth of all consumption in the UK, which can be described as a consumption-driven economy.
To encourage social consumption, a short-term cut in VAT, from 20 per cent to 5 per cent, will lower the costs of eat-in or hot takeaway food, non-alcoholic drinks, holiday accommodation, and visits to entertainment venues and tourist attractions. An “Eat to Help Out” scheme, derisively referred to as a “Meal Deal” scheme, however, fails to impress. Those establishments registered with the scheme will discount up to 50 per cent off the bill, to a maximum of £10 per head, on eating out, once a week, from Monday to Wednesday during the month of August. By itself, this incentive seems unlikely to significantly boost trade for cash-strapped dining establishments.
People require a stable and sufficient incomes before they can afford to spend on non-essential activities . Thus it is necessary to create new jobs, in addition to protecting and retaining those already in employment. Among the jobs-policy decisions listed within the plan can be found initiatives for work search, skills training, careers advice, apprenticeships and traineeships, as well as targeted help for young people. Investment in infrastructure, in particular, is expected to deliver many new jobs. The construction of new homes and the provision of energy-saving home improvements may thus be expected to augment the job market.
When it comes to matters of employment, gloomy prospects lie ahead. Many people are likely to lose their jobs and many of those out of job are unlikely to find suitable employment in the near future. The Coronavirus Job Retention Scheme, which has covered 80 per cent of the wages of 9.4 million furloughed workers up to a maximum of £2,500 per month, will not be extended beyond October 2020. Some furloughed workers may end up losing their jobs as demand for their services is likely to have fallen in the interim. The Job Retention Bonus, a one-off £1,000 payment for every staff member kept on for three months after the furlough scheme ends, is unlikely to be of much help for newly unemployed but previously furloughed people.
Many people have already “fallen through the cracks”, having been completely overlooked by the government’s job retention schemes. It has been estimated that over three million so-called “forgotten” people have failed to benefit from either the Coronavirus Job Retention Scheme or the Self-Employment Income Support Scheme. This number includes newly-employed people (commencing after 28 February 2020), and many who are self-employed, including those who work in the gig economy as freelance workers, those on short-term or zero hour contracts, seasonal workers, and others not on PAYE schemes or otherwise ineligible for Universal Credit. These forgotten people have seen their hard-earned earnings rapidly disappear in the absence of any form of any income whatsoever, with the exception of Universal Credit in some cases, and their personal misfortunes will inevitably add to the depth of the post-Covid recession and further delay the process of economic recovery.
The Chancellor’s latest fiscal statement is undoubtedly well intentioned, but large parts of the accompanying document fail to convince when it comes to the detail. For example, the job policy announcements mostly refer to long-term aspirations, requiring preliminary and substantial investment in human capital, which are unlikely to boost the job market in the short-term. The announced tax cuts, in Stamp Duty and in VAT, will likely have limited impact only. We will have to look to the Autumn Budget for something more tangible.
Ashis Banerjee