We need imaginative ideas on the long road back for jobs Posted by David Smith at 09:00 AMCategory: David Smith's other articles My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt. Some things are worth getting up early for, and Friday’s 7am clutch of official figures on the economy fell into that category. I can safely say that I never expected to see anything like a drop of more than a fifth in the UK’s gross domestic product in a month. Even more surprising, perhaps, was that the figures were not surprising. Roughly speaking, the lockdown has taken out a quarter of Britain’s GDP, April’s 20.4% drop being preceded by a 5.8% fall in March. Almost two decades of growth were wiped out in two months. The OECD says the UK is heading for an
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We need imaginative ideas on the long road back for jobs
My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.
Some things are worth getting up early for, and Friday’s 7am clutch of official figures on the economy fell into that category. I can safely say that I never expected to see anything like a drop of more than a fifth in the UK’s gross domestic product in a month.
Even more surprising, perhaps, was that the figures were not surprising. Roughly speaking, the lockdown has taken out a quarter of Britain’s GDP, April’s 20.4% drop being preceded by a 5.8% fall in March. Almost two decades of growth were wiped out in two months. The OECD says the UK is heading for an unenviable record; the worst recession among leading economies.
An economy that had shown no growth since Boris Johnson became prime minister last summer began to totter in February and toppled over the edge when the lockdown started on March 23. Services fell by 19% in April and 24% between February and April; manufacturing by 24% and 28% respectively, and construction by 40% and 44%.
Some weeks ago, as you may remember, I wrote that the lockdown would have shut down nearly a third of the economy, so a 25% lockdown fall was not a surprise. It could have been worse; the Office for Budget Responsibility’s scenario had a 35% fall in GDP in the second quarter, though that was based on the assumption of a full three-month lockdown, and that the impact would not begin until April.
And, extraordinary though Friday’s figures were, they represent a time, albeit a recent one, of maximum weakness for the economy, a full month of lockdown. I have long argued that this will represent the low point of the recession, a view supported by Jonathan Athow, deputy national statistician for economic statistics, on Friday. The next set of monthly GDP figures will be as interesting, because they will provide the first indication of how rapidly the economy is lifting off the bottom.
Before that, on Tuesday we will get another set of official figures, those for the labour market; employment, unemployment and pay. These, in contrast to the GDP figures, are unlikely to give the full picture of the consequences of this crisis.
Rishi Sunak’s job retention scheme now covers 8.9m furloughed employees, while its self-employment equivalent encompasses 2.6m people. When I wrote on the front page of this newspaper on March 22 about this unprecedented peacetime government intervention in the economy, the consensus was that the number of people furloughed might reach 4m or 5m. It is more than double that and, to put it in perspective, 11.5m represents nearly 42% of all private sector employment in Britain.
How do we prevent a jobs’ bloodbath when the furlough scheme begins to wind at the end of July – when employers will be required to pick up a small part of the bill and employees will be allowed to work again – and comes to an end completely at the end of October?
Clearly, if this unprecedented intervention is to have worked, then most of the furloughed employees will need to have returned to work and the self-employed currently being helped will also have to see a return to something approaching business as usual. The schemes, after all, were never intended to be permanent but to provide a bridge back to normality.
The biggest and most significant employment scheme the government can deliver is thus a further easing of the lockdown. That is why the chancellor is urging people to spend when non-essential shops open tomorrow. It is also why he is said to be keen on the two metre social distancing guidance being reduced to one metre, which will make the difference between a quarter of pubs re-opening next month and three-quarters doing so.
The delays in full primary school re-openings, together with continued uncertainty over whether a full return will be possible for primaries and secondaries in September, was a disappointment. Previous studies of pandemics have shown that school closures are a key factor in their economic and labour market impact.
Even with an easing of the lockdown, Sunak is said to fear that 3.5m more people could be left unemployed when the dust settles later in the year. To put that in perspective, it would imply more than 4.8m people unemployed, or 14% of the workforce. We have never had an unemployment level above 4m, and 14% compares with the unemployment rate peak of 11.9% in the 1980s, 10.7% the 1990s and 8.5% after the financial crisis.
What can be done about it? We know where the vulnerabilities lie. Most of the jobs that have been furloughed, 1.6m, are in retailing, including cars, followed by hospitality, 1.4m, manufacturing, 831,000, and construction, 680,000. The biggest take-up on the self-employment scheme has been in construction.
Tony Wilson, director of the Institute for Employment Studies (IES), argues convincingly that an immediate priority should be to cut the cost of employment for firms. A temporary suspension of employers’ national insurance contributions (Nics), levied at 13.8% on pay above £8,788 a year, equivalent to £2,400 annually for an employee on the average wage, would help enormously. As an alternative to full suspension, Wilson suggests raising the threshold to £18,000.
The IES, in its report, Help Wanted: Getting Britain Back to Work, put together with other expert organisations, has set out a five-point plan. It includes targeted support for furloughed workers who lose their jobs between August and October; an £800m scaling-up of job support, including more Jobcentre Plus work coaches; £2.4bn of additional support for the long-term unemployed and disadvantage; an education, training or job guarantee for school leavers; and the launch of a long-term plan for improving employments prospects and skills, particularly for young people.
I am also intrigued by a scheme, called Toupay, designed by the fintech entrepreneur David Brown, which has attracted interest and participation among business software firms, is being examined by the Commons Treasury committee, and has been submitted to the Treasury.
It builds on an existing government guarantee of eight weeks’ pay arrears for workers in firms that fail, and would use that guarantee to enable businesses, or banks on their behalf, to raise long-term payroll finance in the markets. It suggests that up to £86bn of working capital could eb released to help businesses recover and retain.
All of the above suggests that a range of responses will be required. There is no magic bullet. No modern government has faced an unemployment crisis on the scale that could occur later this year, though a much bigger jobless surge than happened was feared after the financial crisis. The Future Jobs Fund, aimed at young people, was launched in 2009, but abolished in 2010, though a 2012 assessment concluded that it had brought significant net benefits to participants, employers and society. Imaginative thinking like that will be needed again.