IN more of an earthquake than a simple U-turn, Chancellor Rishi Sunak has announced that “workers across the United Kingdom” will get a five-month extension to the so-called lockdown furlough scheme, extending its provisions till the end of March 2021.
The Coronavirus Job Retention Scheme (CJRS) – the official title - will continue to pay employees 80% of their current salary for any hours not worked, capped at £2500 a month. Various other support schemes are also being extended, in what constitutes a complete reversal of the Chancellor’s “get back to normal” strategy.
Accompanying Treasury documentation states: “Extension of CJRS, SEISS grants [for the self-employed], loans and mortgage holidays are all UK-wide”. However, time will tell regarding the details of operation in the other UK nations, which business sectors are eligible, whether the Treasury retains some control over what constitutes a full lockdown, and what elements of grant support in England produce Barnett consequentials.
Note also that Sunak warned MPs that CJRS would be “reviewed” in January.
This reverse ferret follows days of wrangling over the scope and duration of the furlough. It was due to end on October 31, opening the distinct possibility of mass redundancies as the Chancellor rushed to “normalise” the economy.
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However, the second lockdown in England prompted a rethink, as did the row over the Westminster Government’s initial refusal to extend the Mk 2 furlough scheme to the other UK nations. Different Tory ministers said different things regarding Scottish access to the CJRS, indicating as usual that policy was being made on the hoof.
However, the ever-ambitious Mr Sunak seems to have decided to play Father Christmas after all.
Alternatively, it may be that the Chancellor is increasingly aware that the entire UK economy is about to enter 2021 in worse shape than it has been since the Great Depression of the 1930s, and that shutting down the furlough scheme prematurely would just make matters worse.
Only hours before Sunak stood up in the Commons, the Governor of the Bank of England, Andrew Bailey, announced yet another emergency financial package. This involves printing an extra £150 billion and pumping it into the financial system. This is on top of the £300bn in new money (aka quantitative easing) announced in March.
This means that nearly half the entire notional UK National Debt has been printed by the state bank.
The accompanying Bank of England economic forecasts make dire reading. Mention of a quick, V-shaped recovery has long gone. Unemployment will almost double by the middle of 2021, suggesting another million people across the UK face losing their jobs. In addition to the unemployed, at least 5.5 million people will be on furlough in the run-up to Christmas – with at least 2.5 million still there next March.
A cool £40bn has already been spent on the furlough scheme since it was introduced last March, also funded by Bank of England money printing. But HM Revenue and Customs, which administers the CJRS scheme, has admitted that up to 10% of the cash paid out before September – a whopping £3.5bn - may have been made as a result of fraud or error.
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It is also unclear, say economists, whether the furlough payments genuinely safeguard viable jobs or merely delay the inevitable disappearance of unviable ones in sectors such as hospitality, retail, and travel. From this respect, the Chancellor is trying desperately to cover up the underlying economic disaster.
The only part of the economy that seems to be working is the banking system, which has enjoyed higher than forecast profits and rising share values. This is because the Bank of England, with the Chancellor’s approval, has been subsidising banks to lower their interest rates, while the Treasury has made a temporary cut to stamp duty.
The result is a boom in house sales, with the banks pocketing huge profits from the extra mortgage lending. Note: Rishi Sunak is an ex-banker.
The other cliff-edge the Chancellor could see was the looming and still uncertain outcome of the UK-EU trade negotiations. This adds another layer of uncertainty for business in a UK economy that is nosediving at twice the rate of the other big industrial countries.
Extending the furlough and other financial measures provides only a minimum cushion. However, the real issue in all this is not the extension of the emergency support itself – which was always inevitable – but what happens in April?
Who knows, Mr Sunak might be in Number 10 by then.
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