The Government’s response to the outbreak of COVID-19 was unprecedented in both scale and speed and was reasonably successful in protecting the economy through the most stringent period of lockdown. However, job losses have accelerated in recent weeks and, as restrictions have been eased, the sheer scale of the challenge facing the UK economy has become clear: businesses have cut back capital expenditure and consumers are reluctant to return to their normal patterns of activity.
The need to address the risk of a surge in unemployment is clear in the chancellor’s proposals. Young people appear particularly vulnerable, directly because they make up a greater share of the workforce in the sectors most impacted by lockdown and indirectly as younger, inexperienced workers tend to be furloughed first or suffer from last in, first out redundancy approaches. The approach combines supply and demand side measures.
On the supply side, the Chancellor announced measures to support young people into work, the major one being the £2 billion, Kickstart programme to create six-month work placement jobs for unemployed people aged 16 to 24. Additionally, the government is to double the number of work coaches in job centres to 27,000 to help benefit claimants back into work. It is also pledging to provide new traineeships, increase apprenticeships and expand the skills schemes.
As well as offering support to help young people into work, the chancellor announced a series of actions, on top of the previously announced acceleration of £5 Billion of promised infrastructure funding, to boost demand for labour across the economy. These are:
Underpinning all of this was a promise of £1,000 for each furloughed employee retained in the workforce until January 2021.
The additional spending is welcome - in normal times £30 billion would be considered a huge fiscal boost. However, these are not normal times and the proposals suggest a chancellor caught between trying to protect the economy but wanting to limit the call on public resources – most obviously, the £1,000 retention bonus seems a weak compromise between doing something and not spending too much.
Support for employment, especially for young people, is welcome and the measures to boost training and to support people in finding jobs draw are exactly what is required. The support for the hospitality sector is very important for towns across the UK although the scale of impact is unclear: consumers are not spending because health concerns mean they are reluctant to go out.
While the cut in stamp duty will grab the headlines, it is likely to benefit the higher value housing markets in the south of England more than anywhere else – support for house building and the rental market would be a better use of resources.
Faced with a challenging outlook and despite announcing £30 Billion of spending the chancellor has adopted a cautious approach, reverting to the Treasury playbook for the tried and trusted approach of stimulating short-term activity in the construction and housing sectors and consumer spending. More than anything else this illustrates the fundamental challenges that existed in the UK economy before the pandemic. The nod towards “Net zero” is not sufficient to constitute a vision of where the Government wishes to take the economy and, while there were references to “levelling up” there was no detail on how this will be achieved.
The lockdown has provided us with a vision of a different model of economic and social organisation: less commuting; lower emissions and pollution; more use of local shops; and stronger community activity. The chancellor could have grasped this transformational opportunity to provide a vision of a modern, fairer and levelled up UK economy, but he failed to take it. There was no sign of any change in thinking such as offering improvements in pay and conditions for key workers, or details of a plan to rebalance the economy geographically.
COVID-19 has fundamentally changed the economic outlook, exacerbating many of the weakness that already existed especially in the UK’s towns and smaller places. Relying on a mini housing boom and a midweek spending splurge may buy a bit of time but won’t solve core challenges. We urgently need a vision and plan to deliver it for the UK economy - over half a year into the new administration and its intentions remain well hidden.