- Re-starting the economy also means an end to the vast financial support schemes to help individuals and firms, but they will have to be wound down gradually.
- Nearly a quarter of employed people are being furloughed. Getting them back to work brings risks for them and for infection, and will require trust and confidence.
- Government cannot simply unwind restrictions. It will have to offer tax incentives to get money moving round the economy once more.
It’s proving quite easy to spend a gobsmacking amount of money to keep the economy from collapse.
It’s more problematic to lend it by the tens of billions. It will almost certainly prove more difficult again to stop splashing government moola.
Applying the brakes to the spending, while firing up the boilers on the battered British economy, is now where the chancellor, Rishi Sunak, has turned his attention.
He’s looking at the bills for the Job Retention Scheme, or furloughing, which now covers nearly quarter of employed workers. That’s 6.3 million pay packets the Treasury is having to flood, in reverse, through the PAYE system.
The number of self-employed people, on a different income support scheme, is yet to become clear. And 1.8 million more people have applied for Universal Credit since the health and economy crisis began.
Furloughing is, by a long way, the element of support for both firms and individuals that has been most welcomed.
But it’s still got problems and holes in it. The Scottish Tourism Alliance has just published a survey showing half of its respondents are using it, and only 22% of firms in the sector say it works well for them.
Yet however critical they are of the dates for qualifying or any complexity in admin, they know there would and will be a lot of pain without it.
Asked last month, and looking to the removal of furlough payments, the tourism survey by TRKR found 47% of firms won’t be able to employ any staff at all.
One question that raises: if the future is bound to involve redundancy, is it good use of borrowed government funds only to be putting off that date?
But such expectations could be confounded if the exit from furlough is well designed and implemented.
With business and trade unions asked to comment on draft plans for the ways in which businesses can reopen, one theme running through their responses is that spending taps cannot simply be turned off at the end of June, when the furlough and self-employed schemes are currently due to end.
And Mr Sunak gets what they’re saying. On Monday, he told ITV News: “There will be no cliff edge to the furlough scheme. I am working to figure out the most effective way to wind down the scheme and ease people back into work in a measured way.
“But some scenarios have suggested we are potentially spending as much on the furlough scheme as we do on the NHS, for example. Now clearly that is not a sustainable situation.”
(The Chancellor did not say this to ITV’s partner on Channel 3, STV News. Had he linked to the Glasgow newsroom, he would have found that John MacKay, its lead anchorman and the face of the station has… been furloughed. Strange times.)
So exit from furlough will have to be tapered, and for several reasons. One is that people are being asked to take a leap off the rescue boat, and back into some extremely choppy waters. To go from 80% of usual income into a dark void of income uncertainty is a big ask.
Workers do not know the health risks they may face back at work. They may face future illness as infection continues to spread.
With contact tracing now being put in place, we may get a call from a stranger, telling us to go into isolation for 14 days. How is our boss going to feel about that?
Those who rely on contracts from other businesses will find many of those clients shell-shocked and unwilling to commit to new spending.
Where customers are the public, they are being told to be very cautious until there’s a vaccine, and that’s probably a long way off.
The other reason for tapering the furlough is to allow employees to do some work. Unlike the self-employed, those on furlough payments are barred from doing anything for their employer.
When the time comes to crank up the office, numerous changes will be required to manage the use of space and impose social distancing.
A lot of yellow tape will be applied to workplace floors to manage one-way flows and keep people two metres apart.
Personal protective equipment will have to be sourced in advance, with supply chains stretched tight. None of that can be done in advance of a restart by staff who are not allowed to work.
And there’s another risk of furlough being withdrawn too quickly: some companies will move from furlough straight to redundancy. A careful government policy should seek to minimise that, with tapering and perhaps other incentives to employers.
Nations and regions
Can and will it be done differently in Scotland and England? That question betrays the default position of a pre-Covid-19 mindset.
Yes, it could be done differently. Nicola Sturgeon has said there are good ideas in Whitehall’s draft guidelines for easing people back to work, but the first minister also raised trade union concerns that should be addressed: about workplace health precautions being “considered” rather than mandated. The Scottish government will consult on the guidelines/rules, and can adapt them as necessary.
But this is not merely familiar tension between Holyrood and Westminster. “Unlockdown”, as the prime minister is reported to call the process, could also be done differently around the regions of England.
In a paper published in London last week, the Institute for Government pointed out that a regional approach has been tried in South Korea and Japan, and now in Italy.
By lifting restrictions in different regions and nations, it allows the path of infection to be tracked, to see what works best. But the institute also points out the risk of confusing the public with a more complex message.
There will have to be some thought given to travel restrictions between high-restriction and low-restriction areas.
And a big complication is how continued support for furlough costs in one part of the UK would be funded, while there’s withdrawal from another part.
The divergence will likely be between sectors of the economy. Outdoor work has been flagged up as being at the front of the queue, while hospitality looks likely to be among the last to start trading under the “new normal”.
And there could be demographic divergence. Can all those aged over 70 continue to face incarceration when the state of their health varies so much?
Can children – who may yet be proven to have lower infection rates, and less dire escalation of symptoms – be given the opportunity to choose a “bubble” of friends for play as well as learning, so long as they stick to the same bubble members?
As young adults may be at less risk from the virus and at more risk than other groups from the economic impact on their finances and job prospects, can they be given priority for relaxed rules?
And if it’s true that women are less susceptible to the life-threatening complications from Covid-19 that afflict men, could there be an easing of restrictions on women without men? I wouldn’t bet on it.
It’s clear that whichever route is taken – and there could be several such divergences around the UK at one time – the increased complexity risks not only confusion, but a sense of unfairness. And if people don’t feel the application of rules is reasonable or fair, that’s where the surprisingly high levels of compliance in phase one could be undermined in subsequent phases.
Cash for clunkers
The Institute for Government points out that it will not be sufficient simply to withdraw restrictions, as if economic activity will naturally and quickly flow back into the space occupied by constraints. It won’t.
For those reasons of stickiness of purchasing decisions by both business clients and consumers, there will also be a requirement on Rishi Sunak to stimulate activity.
As well as spending, there are tax levers available. Companies could be incentivised to invest in anti-infection measures around workplaces, which will be an added cost to cash-strapped firms.
Or consumer choices can be stimulated. VAT cuts targeted at specific sectors of consumer goods, for instance? In Germany, there’s already been an announcement that VAT will have a temporary cut for restaurant meals starting in July. It gives customers and restaurateurs something to book and look forward to.
To boost rehiring of people, one controversial idea from the Institute of Government report is holding back on further increases to the legislated minimum wage, though this would be at a time when low-paid key workers have won a lot of public sympathy.
And could there be a car scrappage scheme, similar to the one we had 11 years ago to help jump-start the economy out of the financial crunch, but weighted heavily towards low-emission vehicles? In the USA, it was known as “cash for clunkers”. This could hit the twin objectives of stimulating the economy while lowering emissions from the nation’s fleet of vehicles.
Relaxing the rules will have to be complex as well as cautious. It will require encouragement and incentives, and the continuation of a very large bill for government.