Virus Forces Sunak to Spend More on Saving U.K. Jobs and Firms

Chancellor of the Exchequer Rishi Sunak will set out a new crisis plan to protect jobs and rescue businesses as the coronavirus outbreak forces the U.K. to return to emergency measures.

With Covid-19 spreading rapidly again, Sunak is having to provide more state support to avoid a surge in unemployment just at the moment he had planned to scale back an already huge package of aid.

The chancellor has scrapped a planned autumn budget and will set out what he called his “winter economy plan” to safeguard jobs in the months ahead, in a statement to Parliament on Thursday afternoon.

Extra state cash for wages and loans for firms will put pressure on the public finances — but after Johnson imposed fresh restrictions on the economy to tackle Covid-19 this week, Sunak has little room for maneuver.

“His challenge is explaining to businesses and workers how they’re going to have sufficient income to get them over the next few months of coronavirus restrictions,” said Nicky Morgan, a Conservative peer and former Treasury minister. “There are so many sectors that are unable to open in the way they need to and that means he doesn’t have much of a choice.”

Recession

As he tries to pull the economy out of its worst recession in more than a century, Sunak will have to balance demands for extra support with the need to keep a grip on the public finances.

The national debt surpassed 2 trillion pounds ($2.6 trillion) for the first time this year. But he also has to contend with a pandemic that’s forced fresh restrictions on the general public.

The chancellor won plaudits for innovative measures to support workers and companies during the first spike in the virus in March. But these programs are scheduled toclose in coming weeks.

The loss of state support threatened to undermine the U.K.’s economic recovery at a time when ministers are again tightening restrictions on commercial activity to curb the spread of the disease.

The opposition Labour Party and business groups demanded the Chancellor come forward with plans to replace his flagship furlough program, which is due to close on Oct. 31 – or face a wave of job losses.

“I have been warning for months and months that the chancellor’s one-size-fits-all withdrawal of furlough support was a recipe for a jobs disaster this autumn,” Labour Shadow Chancellor Anneliese Dodds said in a statement.

Among theoptions Sunak is considering is a German-style “short hours” program to top up the pay of workers who return to their jobs part-time. It would replace the furlough program, which has paid more than 9 million workers up to 80% of their wages at a cost to the Treasury of more than 39 billion pounds so far.

Under the plans, employers would pay staff for the hours worked, and the cost of the remaining hours not worked would be split between workers, employers and the government, people familiar with the discussions said. Separate help could be targeted at companies most severely affected by the restrictions, they said.

Creative

The Treasury declined to comment on the specific proposals but an official emphasized that Sunak has promised to “act in creative and effective ways” to support jobs.

People familiar with the matter said the chancellor is also planning to extend the deadline for new applicants to several state-backed loan programs, until at least the end of November.

While Treasury officials were tight-lipped about what measures may be included in Thursday’s plan, the chancellor has been studying a range of proposals from business groups, think tanks and unions. They include:

  • Extending the year-long business rates holiday
  • Furlough extensions targeted only at the worst-hit sectors, such as aviation and events
  • Further deferrals of Value Added Tax payments
  • Cutting employers’ national insurance payments.

“He’s got an unenviable task,” said Philip Shaw, chief economist at Investec Bank Plc. “He has got to balance out the need to keep the economy going and a medium-term requirement to keep the public finances on track and maintain the U.K.’s fiscal credibility. And that is no mean feat.”

Pubs and Restaurants

Although Sunak unveiled a host of measures in the summer to support the hospitality and leisure industries, these sectors are likely to be hit more than most by new requirements outlined on Tuesday for pubs and restaurants to close at 10 p.m. and for office staff to work from home. That means they may need more assistance over the winter too.

“That is where the concentration of job losses is going to be,” Resolution Foundation Chief Executive Torsten Bell told Parliament’s work and pensions committee on Wednesday. “That is where our crisis sits.”

Johnson warned the new limits may be in place for six months, prompting a backlash from businesses, who urged the chancellor to save them from “ruin.” It also left economists warning the U.K.’s recovery from its record slump in the second quarter is in peril, while the number of new daily virus infections is now close to its peak again.

The chancellor said on Twitter his emergency plans would “continue protecting jobs through the winter.”

“The fact there isn’t going to be a budget clearly means that the economic outlook is incredibly uncertain,” said Morgan. “It also means that it’s impossible to make any immediate medium to long-term decisions about the public finances and how you might begin to repair that.”

— With assistance by Andrew Atkinson, and Todd Gillespie

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