Coronavirus

'The pandemic has shown us the power of the state to intervene in hitherto unimaginable ways in supporting employees. But it has also shown us that the self-employed remain something of an inconvenient afterthought.'

'A year ago, there was every indication the pandemic would widen inequalities in employment and earnings between old and young, whites and ethnic minorities, men and women. That now looks less likely.'

This observation looks at how the numbers in England on the NHS waiting list changed before and during the pandemic and discusses the key factors that will affect how much they will grow in the near future.

Official statistics released by DWP today show that by February this year there were 5 million Universal Credit (UC) claimants – double the number seen pre-pandemic.

But for a majority, families provide vital support when times get tough. The welfare state could not begin to operate without the care we provide for elderly parents, for disabled spouses, for sick children, as well as the financial support we provide each other when things go wrong.

The unwinding of the furlough scheme represents a step towards ‘normality’ in the labour market, but it also will mean big income losses for many of those who end up unemployed unless they are swiftly able to find alternative employment. In this observation we discuss the kind of support available for such workers via other programmes, and what sort of hit to their income they might see if they do lose their jobs.

'The power of the Treasury needs constant challenge and scrutiny, but in the end, it needs to play its role in challenging and scrutinising the rest of government. It needs to be unpopular.' Paul Johnson in The Times on the Treasury's role in last week's decisions on education spending.

In this observation we look at the arguments to consider when assessing the merits of the large injection of education spending.

A look at the manifestos not just of the SNP, but of Scottish Labour and Scottish Conservatives too, reveals just how far the consensus in Scottish politics has diverged from that in England.

While there is still much uncertainty, we now project Scotland’s budget deficit in 2020–21 to have spiked at between 22% and 25% of national income, up from 8.6% of national income in 2019–20, although less than our previous projection. It is also still higher than a forecast deficit of 16% of national income for the UK as a whole for the same year.

This morning the ONS published its first estimates of the public finances over the whole of the financial year 2020-21. Borrowing is estimated to have reached £303 billion, or 14.5% of national income. This is £52 billion less than the £355 billion forecast by the Office for Budget Responsibility at the Budget in early March. However, it is a staggering £248 billion, or 12.1% of national income, higher than forecast just before the financial year began – and more to the point, just prior to the economic impact of Covid-19 started to be felt in the UK – in March 2020.

Scottish Labour set out a vision for big expansion of the welfare state - with no sense of how much this would eventually cost or how it would be paid for

The Scottish Conservatives offer extra spending on the NHS and a range of targeted measures – but an ambition to cut income tax looks unlikely to be realised without cuts to at least some services.

It remains to be seen whether we will get back to spending 0.7 per cent of national income on overseas aid. My guess is that there are no serious plans to do so. If there are, then it is incumbent on government to tell us when and how that will happen and especially important to plan any big uplift carefully and well in advance.

Today, the Department for Work and Pensions released the latest official statistics on household incomes, poverty, and income inequality. This observation looks at the key findings from those statistics.

The COVID-19 crisis has both created billions of pounds of new costs for and demands on councils’ budgets and has hit many of their sources of income. We find that across the sector as a whole, the government has largely addressed forecast pressures in 2020-21. However, financial pressures have been, and will continue to be, uneven across councils. As a result, underlying the aggregate picture, many councils still face at least some shortfall this year – particularly among shire districts.

It’s easy enough to see the politics behind Rishi Sunak’s tax increase of choice. Opaque, in the future, jam today, well-hidden pain tomorrow. The scale of the increase, though, makes the economics more concerning. Not only is he unlikely to get as much revenue as he’s banking on, he risks reducing investment levels and hence wages and living standards over the long run.

'Sunak’s conference promise that he will always balance the books was, to be generous, no more than a rhetorical flourish. What he is actually aiming for and by when we do not know. This week’s budget is his chance to give us a real sense of who he is and where he wants to go.' Paul Johnson in The Times.

By the time the pandemic is over, most children across the UK will have missed over half a year of normal, in-person schooling. This observation sets out the economic case for a massive national plan to address this crisis.

The temporary £20 per week increase in Universal Credit and Working Tax Credit enacted at the start of the pandemic is due to expire at the end of March. Some campaigners have called for it to be extended for another year or made permanent, while the government are said to be considering instead a £500 one off bonus to benefit recipients.

'Right at the top of the agenda for government should be how to make up this educational deficit created by the pandemic and our response to it — especially for the least advantaged children.'

Rishi Sunak will have a host of tough choices and trade-offs to make as he steers the economy and the public finances into calmer waters. At the very least, the chancellor needs to avoid exacerbating these inequities further, as his predecessors often did. That means looking at tax and spending decisions according to how they affect those with wealth, and those without.

Last week, the IFS published research on how the impact of the COVID-19 crisis on consumer spending and behaviour has varied across the country. In a new observation, we consider the implications of this research for local government.

It’s spending review week. The chancellor has postponed the budget and decided not to have a full three-year spending review, but Rishi Sunak nevertheless will be delivering yet another big statement on Wednesday, setting spending levels for next year. That’s the idea, anyway.

The 2020 Spending Review, due to conclude on 25 November, will not be the comprehensive, multi-year review we were originally promised. Instead, the Chancellor has decided to set plans for 2021−22 only – a sensible decision in the circumstances. But while this Spending Review might be more short-term in its nature than usual, it will still contain important announcements.

Last week saw significant political debate about the amount of extra funding being given to English councils moving into tier 3 (‘very high alert’) of the government’s COVID alert system. Most of the attention focused on funding to help pay for additional business support measures – such as grants for businesses legally able to open but facing big falls in demand – on top of those being funded directly by central government.

The last few days have seen free school meals in England rocket to the front of the papers, as many MPs, campaign groups and businesses have lined up behind Marcus Rashford’s proposals to extend free school meal vouchers through the school holidays until Easter next year. While the motion was defeated last week, the Labour party has promised to bring the motion again – and several Conservative MPs have already indicated that it may receive a more sympathetic hearing the second time around.

'The present crisis might yet turn out to be that kind of more permanent shock as, in all probability, will Brexit. As we saw after the 1980s, permanent shocks can leave lasting scars.'

Figures out today from the ONS show that headline inflation over the year to September was just 0.5%. With earlier figures showing a fall in earnings of 1% this means that under the “triple lock” next April would see the basic state pension and new state pension both increase by 2½%. This would bring the increase in the basic state pension over the last eleven years up to 41%, compared to 25% if it had been indexed in line with inflation or by 22% if it had been indexed in line with earnings.

Choices over benefits policy are never easy. There are unavoidable trade-offs between cost, generosity and incentives. This year offers an opportunity to improve what we’ve got and to make a conscious choice over how generous we want the system to be.

As for phase four, the return to normality, Mr Sunak needs to learn one big lesson from policy in the wake of the financial crisis. From 2010 on that policy was dominated by the desire to reduce the deficit. But it lacked a crucial second leg: an actual economic strategy focused on productivity, growth and economic success. Phase four must not just be about getting the huge deficit down. It must involve a smart economic strategy for infrastructure investment, education, economic governance, tax reform and more besides.

Now is not the time to raise taxes; the economy is still weak and the recovery only just starting. But that time will likely come.

In this observation, we use data from an online survey of parents with school-aged children – funded by the Nuffield Foundation and collected during June and July 2020 – to document the patchwork of in-person schooling that children had before the summer. We also explore parents’ concerns about sending their children back to school at the end of the last term.

On Monday, the government performed a dramatic U-turn on how A Level grades are assigned to students this year. The most pressing issue now is what will happen to university places.

We need policies directly focused on job creation and supporting people - especially young people - to find jobs, writes Paul Johnson.

"School closures don’t merely put progress on educational equity at risk", Paul Johnson writes, "they put at risk years of slow progress towards gender equality in the labour market."

This morning, the ONS published its monthly public finance release for April, giving us an initial snapshot of the public finances under lockdown. It throws the enormous impact of the restrictions on the public finances into sharp relief.

On Tuesday (12 May 2020) the Chancellor, Rishi Sunak, announced an extension to the Coronavirus Job Retention Scheme (CJRS), which covers 80% of employees’ usual salaries, up to a cap of £2,500 a month, while they are furloughed.

The coronavirus outbreak and associated containment measures have caused huge economic fallout across the world. The sharp decline in economic activity that is now occurring will depress government revenues and push up public spending. In addition, governments have, appropriately, responded with packages of fiscal measures that will help support households, businesses and public services through these challenging times and limit the long-run damage done by the crisis. But these measures will also have the direct impact of adding considerably more to government borrowing.

The fall in stock markets has reduced the wealth of those who directly hold shares and of those with defined contribution pension pots that are invested in equities.

"We are not all in this together when it comes to the social and economic consequences of the virus and our response to it", writes Paul Johnson.

UK households hold around £230bn of unsecured or consumer debt – including loans, credit card debt, hire purchase agreements and overdrafts. This equates to an average £8,000 per household. The bulk of that debt is held by those on relatively high incomes and in normal times its repayment tends not to cause financial difficulties. But in a minority of cases, debts can put stress on households’ budgets with consequences for living standards and mental health.

The spread of COVID-19 has led to sweeping changes in the way households work, spend their time and shop. This has led to large changes in spending patterns and, in some cases, rapid price changes. How will changes such as these be reflected in headline inflation measures such as the Consumer Prices Index (CPI)?

When and how should the coronavirus lockdown end? "We need some framework for decision-making, not a set of opinions about the right decision", argues Paul Johnson.

On the eve of the economic crisis caused by the public health response to coronavirus, around 76,000 working-age families were subject to the benefit cap. The cap means that most of these families, and some of those who have since lost employment during the crisis won’t benefit at all from the temporary increases in benefits announced by the Chancellor. The cap provides a strong financial incentive for families to move into paid work or to move to cheaper housing; but this is less important, and in many cases undesirable, at the present time. Raising or removing the cap so that all working age benefit recipients can benefit from the temporary increase in support would make sense, at least while the current social distancing requirements are in place.

An important part of the UK policy response to the COVID-19 pandemic has been to try to help ensure key workers with children have access to sufficient childcare. Children of key workers are allowed to continue attending school and childcare settings, and both schools and early years providers are working to ensure wraparound care outside of school hours. Non-working partners, or those working from home, are also expected to provide childcare for key workers in some families.

The Debt Management Office announced yesterday that in order to finance the Government’s response to the Covid-19 outbreak it intends to auction £45 billion of gilts this month. This would be a record. It is highly likely that the amount that needs to be raised over the new financial year will be the highest, as a share of national income, since 2009–10 and it could even exceed that peak. With an increasing amount of gilts set to be bought by the Bank of England the public finances will in future be even more exposed to changes in short-term interest rates.

By the time the coronavirus lockdown ends, the government's choices "will be utterly different" to when it took office, writes Paul Johnson. "How it makes those choices could prove even more important than the immediate response to the crisis."

With no vaccination available, scientists recommend non-pharmaceutical interventions – in particular, handwashing, social distancing, and the shielding of elderly and vulnerable groups – as the only feasible way of suppressing the spread of COVID-19, and lessening its mortality rate. Such measures, when extensively and strictly enforced, appear to have been effective in stemming the spread of the virus in South Korea and China, and there are promising early signs of their effectiveness in Italy too.

The coronavirus pandemic is first and foremost a public health crisis. But it also represents a large and systemic economic shock, with massive effects on both the supply and demand sides of the economy.

Today (26 March 2020) the Chancellor announced new, very generous support for the self-employed. Those who earn the majority of their income from self-employment and who had average profits of no more than £50,000 over the last three years will be eligible for a taxable grant equal to 80% of the average profits they reported across the three years from April 2016 to April 2019, up to a cap of £2,500 per month, if they report that their income has been negatively impacted as a result of coronavirus.

Isabel Stockton, a research economist at the Institute for Fiscal Studies, said: “The response to the covid-19 pandemic has led to a sharp downturn in economic activity. It has also, rightly, prompted a substantial fiscal policy response, the cost of which will add directly to government borrowing.

There is a clear need to temporarily reallocate some workers but this should be balanced with the need to have the economy ready to quickly resume ‘business as usual’ once the COVID-19 crisis is over.

Over the past decade employment has grown very strongly, from 29 million to 33 million in work (70% and 76% of the working age population). At the same time wages have grown at historically slow rates.

In this observation, we set out some of the most important facts about key workers to help inform the evolving policy response to COVID-19.

Chancellor Rishi Sunak has announced more financial measures to address the impact of coronavirus on the economy.

It looks likely that responding to the coronavirus outbreak (covid-19) will be at the centre of Wednesday’s Budget. We look at some of the options the Chancellor has.