For a man who has decided neither to have a budget this autumn, nor to run the previously planned three-year spending review, Rishi Sunak has been pretty busy. After all, you don’t spend an extra £200 billion or so in a year without some effort.
Less than a month after he published his “winter recovery plan”, and only ten days after announcing a support package for businesses forced to close as a result of new restrictions, he came back to parliament last week with yet another big spending announcement. In doing so, he effectively tore up that winter plan and started again. Nimbleness is good; signs that economic policy is being made on the hoof and is not joined at the hip with health policy perhaps less so.
In the context of that £200 billion spent since lockdown, the cost of the package will be relatively modest. It’s hard to know how modest, though, since the Treasury, remarkably, didn’t provide a costing. Nor did it tell us how many people were expected to benefit. But it could easily add £10 billion or more to this year’s spending. That would be pretty big news in normal times if it was the result of an entire budget. It’s a measure of how far we’ve come that it no longer feels surprising.
The new offer is much more generous than the original job support scheme, as was clearly necessary once large parts of the country went into tier 2 measures. The original scheme, aimed at protecting only “viable” jobs, would have made sense in a world in which the virus was gradually receding and businesses across the board were reopening. That, clearly, is not the world we are in now. Requiring employees to work 20 per cent of their normal hours and employers to contribute just under 25 per cent of normal wages, this new incarnation of the job support scheme is a big change from the original, which required a third of hours to be worked and more than half of normal wages to be paid. It will protect a lot more jobs.
That’s the upside. A risk, as the Institute for Government has pointed out, is that a large fraction of the jobs that will be supported may not be in those sectors artificially suppressed by existing measures. Around half of the two to three million individuals still on furlough in mid-September worked in sectors that overall were back at close to pre-pandemic levels of output. Jobs furloughed in those circumstances seem rather less likely to come back in the long run, yet many may continue to have taxpayer money spent on supporting them.
More than six months through this crisis it is surprising, and a huge constraint on policy, that the government has either set its face against providing wage subsidies that differ by sector, or has still not found a way to do so. Even relatively crude targeting by sector might have been better than the uniform schemes we have.
For the moment, these subsidy schemes will continue to support the wages and living standards of a lot of people. That’s why it still doesn’t quite feel like the economy has taken the huge hit that it has. But unemployment is rising. It will rise further. In some ways, the rise we have seen so far is of a familiar nature. The young, the low-paid and those on insecure contracts have been the most likely to lose their jobs. One very striking aspect of the Institute for Government analysis, though, is that the regional composition of job losses is very different to what one might normally expect. London has been hit especially hard. At least until the summer the Midlands and much of the north had suffered much less. In large part, this reflects the importance of hospitality, leisure, entertainment and tourism to London. That also will be why London has experienced much the biggest fall in job vacancies of any part of the United Kingdom. All of which reveals a truth too often forgotten: London is by far the richest, most productive part of the UK, but it's also by far the most unequal. Armies of Londoners work in low-paid and insecure jobs.
With luck, London’s economy will be strong enough to bounce back. With luck, the temporary, but increasingly long-term support that Mr Sunak is providing for jobs will not be needed beyond the first or second quarters of next year. If we are not lucky, and the virus does not recede or we do not get a vaccine, then there will have to come a time when this support is withdrawn. That will mean a huge and painful restructuring of our economy and labour market.
Therein lies the big difference between this shock so far and most other economic shocks. It wasn’t caused by any underlying economic imbalances. We hope that it will be temporary and we can get things back to something like where they were. That hope is perhaps becoming increasingly forlorn, but while it remains the case for government tiding us over will remain. What is much more difficult is dealing with shocks that will have permanent effects. They are much more painful because jobs and businesses cannot be saved. It can take a long time for new ones to appear.
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. Dealing with their aftermath will require a lot more ingenuity than simply throwing money at wage subsidy schemes. Mr Sunak and his officials at the Treasury have been working hard this year. They will be spending less next year, but they’re likely to be working even harder.
This article originally appeared in The Times and is used here with kind permission.