How will the government’s support packages impact the economy in the long term?
The Covid-19 crisis has already had a devastating impact on the UK’s economy. The onset of the pandemic saw GDP fall by just over 25% between the January 2020 and April 2020. Although the economy has bounced back a little since then, economists are estimating that the overall decline will be the worst the UK has seen in over one hundred years.
All areas of the economy have been hit with hospitality, retail, tourism and aviation bearing the brunt due to a completion inability to trade due to lockdown restrictions. The British Retail Consortium have estimated that nearly 180,000 jobs have already been lost in retail alone with a quarter of a million on furlough. Many pubs, bars and restaurants expect to be financially unviable by the end of 2021 placing more jobs at risk. Thousands of jobs have already been made redundant by a number of the big airlines.
The vaccination programme might be giving some light at the end of the tunnel but the employment crisis is arguably just beginning. The unemployment rate at the end of 2020 was 5% and in the three months to the end of November 2020, the redundancy rate was at a record high. With the pandemic still raging and restrictions still in place, these statistics look set to rise.
Whilst the government’s grant schemes have certainly prevented some redundancies which would have been inevitable otherwise, it seems likely that all the schemes have done is kick the can further down the road and we can expect to see significant increases in job cuts being made at the end when the schemes and support are withdrawn. There are lots of suggestions to temper the problem of cliff-edge redundancies including: cutting furlough pay/support payable and industry specific furlough.
The total cost of government support is estimated to reach £85bm under furlough and £60bn on other schemes, loans and grants. A further, equal amount is estimated as having been spent on the NHS and health services to increase output during the crisis. In terms of funds to pay for this, these are depleting fast and annual borrowing (and national debt) is set to rise to 1940’s levels with emergency borrowing having taken place.
At some point, we will all have to pay the piper and whilst we cannot know for certain how we will be expected to do this, we can reasonably predict some likely measures:
-Spending cuts which will inevitably have a negative effect on the already most vulnerable in society
-Tax rises which could see employers who have relied on the furlough scheme and individuals on grant loans, bearing the brunt. We still don’t know the reason for the government’s published list of employers who have used furlough: is it for this reason?
-Inflation and interest rate hikes as fewer people spend in an already closed down society
-A proposal to privatise the NHS or, new requirement for certain insurances to be taken out by citizens who want to access it
Author: Charlotte Geesin LL.B (Hons) LLM, Head of Employment Law & Business Immigration at Howarths
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