Britain's Chancellor of the Exchequer Rishi Sunak speaks during a news conference inside 10 Downing Street, in London, on Sept. 24, 2020.JOHN SIBLEY/AFP/Getty Images
The British government has unveiled a series of emergency measures to head off growing fears that a surge in COVID-19 cases could do irreparable damage to businesses and jobs. But several economists question whether the action will be anywhere near enough.
On Thursday, Rishi Sunak, the Chancellor of the Exchequer, announced a new wage support program to preserve “viable jobs” for six months. He also extended several business loan programs and committed to maintaining a reduction in the sales tax for the hospitality and tourism sectors until next March.
“The resurgence of the virus, and the measures we need to take in response, pose a threat to this fragile economic recovery,” Mr. Sunak told the House of Commons. He didn’t say how much the new programs would cost, but some analysts put the figure at £5-billion ($8.5-billion).
The pandemic has come roaring back in Britain after a brief summer lull. The number of new daily cases has more than quadrupled in the past month and reached 6,634 Thursday, the highest one-day total since the crisis began. Hospitalizations and deaths have also tracked upward, and health officials have warned that the virus is almost out of control. They worry that without assertive action, the country could see 50,000 new cases a day by mid-October.
This week the government tightened restrictions on social activities and travel and ordered pubs and restaurants to close at 10 p.m. Scotland has gone further and banned people from one household from mixing with others. But there’s increasing concern that the surge in cases, and the government’s response to the crisis, could weaken an already shaky economy.
Britain’s economy has been underperforming much of Europe’s throughout the pandemic, largely because the government was slower to impose a national lockdown last spring and kept the restrictions in place longer. Most economists now expect gross domestic product to fall by at least 10 per cent this year.
That’s only slightly better than the outlooks for France and Spain, where the pandemic is spreading even faster. The French economy is forecast to contract by about 11 per cent this year, while Spain’s could shrink by as much as 12.6 per cent. However, many economists caution that Britain is several weeks behind France, Spain and other European countries in terms of seeing the full impact of the second wave of the virus.
The U.K. government has already spent almost £200-billion on various schemes to protect jobs and support businesses. But a lot of those measures, including a wage subsidy program, are set to expire next month. Mr. Sunak had been under increasing pressure to extend the programs, especially after Germany, France, Spain and Italy moved recently to continue their emergency support programs well into next year.
On Thursday, Mr. Sunak said the government would not continue the costly furlough program, which paid as much as 80 per cent of the wages of workers who had been laid off because of the pandemic. However, he said it would start covering some of the wages of part-time employees.
The government is hoping to encourage companies facing a drop in revenues to cut working hours instead of slashing jobs. Under the new program, employees will need to work a third of their usual hours. For every hour not worked, the government and employer will each pay a third of the employee’s normal salary. In total, the government says the program will ensure that employees put on reduced hours will keep 77 per cent of their usual salary.
“We need to create new opportunities and allow the economy to move forward, and that means supporting people to be in viable jobs which provide genuine security,” Mr. Sunak said. “I cannot save every business. I cannot save every job.”
Business groups welcomed the measures and said the new job program will provide critical help to companies facing grim prospects. “These bold steps from the Treasury will save hundreds of thousands of viable jobs this winter,” said Carolyn Fairbairn, director-general of the Confederation of British Industry, one of the country’s largest business organizations.
But several economists doubt Mr. Sunak’s plan will do much to reduce the sharp rise in unemployment that’s likely to happen when the furlough program ends. Roughly 9.6 million people have been on the scheme since last spring, and it’s unclear how many jobs will be sustainable once the wage subsidy expires.
Torsten Bell, the chief executive of the Resolution Foundation economic think tank, said that because of the way the new job program has been structured, it would be cheaper for many employers to axe one full-time worker instead of keeping two staff on part-time hours. “The scheme on its own will not encourage firms to cut hours rather than jobs,” he said on Twitter. The program “is a big deal that will, temporarily, stem but not halt the rise in unemployment coming.”
Added Tom Selby, a senior analyst at London’s AJ Bell investment firm: “Taken together, these measures should help ease the pressure currently being felt by businesses and workers up and down the country. However, whether it is enough to prevent a surge in unemployment as we head into winter remains to be seen.”