Sunak to Spend Billions Saving U.K. Jobs in Next Four Months
(Bloomberg) -- The U.K.’s finance minister Rishi Sunak is set to spend billions of pounds in extra support for the economy over the next four months, as pandemic curbs pushed unemployment to its highest level in almost five years.
The chancellor of the exchequer will set out the details in his March 3 budget after Prime Minister Boris Johnson outlined a plan for reopening the U.K. economy that keeps some businesses closed until at least June 21. Sunak on Tuesday suggested support will extend beyond the end of lockdown measures as he seeks to spur economic recovery.
“At the budget next week I will set out the next stage of our plan for jobs, and the support we’ll provide through the remainder of the pandemic and our recovery,” the chancellor said in an e-mailed statement. “I know how incredibly tough the past year has been for everyone.”
Johnson’s four-step road map for lifting the lockdown will influence how fast Treasury subsidies are withdrawn, according to people familiar with the matter. Key aid programs are currently due to end as early as next month but Sunak will extend assistance so that companies and individuals do not face a cliff-edge, they said. Dan Hanson of Bloomberg Economics said extending support to mid-year could come at a cost of about 18 billion pounds ($25 billion).
Hanson’s estimate includes as much as 7 billion pounds for furloughed workers, 5 billion pounds for the self-employed, 750 million pounds to extend the reduced sales tax rate, and one-off grants totaling 5 billion pounds in lieu of extending the business rates holiday.
It came as:
- The Times newspaper reported Wednesday that Sunak is preparing to extend the stamp duty holiday on home purchases by three months until the end of June, without saying how it obtained the information
- Some 26 Conservative members of Parliament wrote to the chancellor urging him not to raise fuel duty in the budget, in a letter seen by The Sun newspaper
- Millions of self-employed workers will be offered grants of up to 7,500 pounds but the scheme could be dropped from May, the Daily Telegraph reported, without citing anyone
Sunak faces a daunting task to put the economy on a path to recovery after suffering its deepest slump in three centuries last year. Unemployment climbed to its highest rate in almost five years in the fourth quarter, the Office for National Statistics said Tuesday.
The budget deficit is already setting peacetime records after the chancellor committed to spending 300 billion pounds to help the health service and businesses cope with the crisis, a sum that’s set to increase next week.
On Monday, Johnson detailed his four-step plan gradually to lift restrictions that have damaged the economy and kept most children away from school since the start of the year. While schools will reopen in two weeks, people will be asked to work from home where possible until at least June 21.
A snap poll of 3,900 adults in England by YouGov found the largest proportion -- 46% -- think the government has got the balance right on lifting the lockdown, whereas 26% think ministers are moving too fast and 16% too slowly.
Sunak’s package of financial support will broadly track the exit strategy, while taking into account the fact that business will not immediately return to normal levels even when shops and pubs are allowed to reopen, according to the people, who spoke anonymously about unannounced plans.
“People may be concerned about what these changes mean for the various support packages for livelihoods, for people and for the economy,” Johnson told members of Parliament Monday. “We will not pull the rug out. For the duration of the pandemic, the government will continue to do whatever it takes to protect jobs and livelihoods across the U.K.”
What Our Economists Say:
As things stand, the furlough program is due to be wound down at the end of April. If that happens, we expect the unemployment rate to reach 7.5% in the spring as the labor market moves back in line with its historical relationship to GDP. We think an extension to August would offer the right balance between protecting jobs and tapering support.
--Dan Hanson, Bloomberg Economics. Click here for the full REACT.
That suggests assistance will last beyond the tentative date of June 21 set by Johnson to reopen the last sectors of the economy.
The premier’s road map means businesses such as nightclubs will be shut until at least June 21, while theaters, concert halls and sporting venues will have limits on the crowds until then, rendering many of them unprofitable.
Pubs and restaurants won’t be able to re-open until at least April 12, and then for outdoor service only. By the time indoor service is allowed in mid-May, many businesses will have been closed for nearly 200 days “with just a couple of weeks of heavily restricted trading in December,” said UKHospitality Chief Executive Officer Kate Nicholl.
“A major package of financial support is imperative,” Nicholl said. “This delay in reopening will make the job of survival all the more difficult for businesses only just clinging onto existence.”
Government support policies currently due to expire by the end of April include Sunak’s benchmark program that pays furloughed workers up to 80% of their wages, a business rates holiday, and reduced sales tax for hospitality and tourism. The chancellor faces calls to extend all of them, both from business groups and politicians, including from two predecessors in his own Conservative party.
“The chancellor must deliver on the prime minister’s ‘whatever it takes’ pledge,” said Federation of Small Businesses National Chairman Mike Cherry. “On one side of the coin we have continued restrictions – on the other, we need corresponding business support.”
Members of Johnson’s own Conservative Party also called for the economy to be reopened more quickly, especially when the 32 million people most vulnerable to Covid-19 are due to have been vaccinated by mid-April.
©2021 Bloomberg L.P.