Complaints from employers are growing stronger. Away from the headlines of a year ago warning of resurgent 1980s-style unemployment, companies fear there won’t be enough workers for everyone.
And yet the UK economy faces a paradox: After the government delayed the final easing of Covid-19 restrictions in England, employers are also upping the volume on the growing risk of job losses. Is it just corporate lobbying against Janus or can both be right at the same time?
This juxtaposition is not lost on the Chancellor, Rishi Sunak. Faced with demands for further economic support as the endpoint of pandemic restrictions recedes once again, the Treasury has held firm. Calls to extend the leave to avoid another blow to jobs have been dismissed.
Although Sunak would never have admitted it at the time, the Treasury maintains that the Chancellor was “long” in the March budget by deliberately extending the leave until the end of September to deal with delays resulting from the lockdown.
Treasury insiders are quick to report industry complaints about staff shortages when questions about leave are raised. Conservative MPs are also pushing to end the program, arguing that workers on leave are bleeding the state dry and preventing the labor market from functioning effectively.
There are several reasons why this logic is backwards. After the worst recession in three centuries, serious employment risks remain. The Covid-19 pandemic is far from over. Although employers have started hiring again – and many are not finding enough staff – there are still half a million fewer people at work than before the pandemic. The persistent health emergency and restrictions are the main obstacle to a functioning labor market, not supportive measures.
Against this background, the Resolution Foundation think-tank estimates that there is still a “Covid employment gap” of 2.8 million workers – on leave or unemployed – to be filled before the end of the resumption of work. employment in the UK.
More than a million migrant workers are estimated to have left the UK during the pandemic. Many are unlikely to return due to pandemic restrictions and tighter post-Brexit immigration rules, exacerbating labor shortages for employers who relied on low-paid EU staff. But this cannot be resolved by terminating the leave; it is set by employers who raise wages and improve labor standards, after neglecting their staff for too long.
Businesses could suffer from short-term bottlenecks after the easing of lockdowns this spring, but look beyond that immediate moment and there are plenty of reasons why these issues are temporary factors that will dissipate.
The Bank of England expects unemployment to hit nearly 5.5% after the holiday ends in September, up from the current rate of 4.7% – representing thousands of jobs lost . While much better than last year’s Office for Budget Responsibility forecast for a peak unemployment rate of 12%, achieved as the pandemic worsened, this is hardly a moment of convenience.
From next week, employers must contribute 10% of an employee’s salary on leave, rising to 20% in August, with taxpayer support reduced from the current level of 80%. Employees will continue to receive the same amount.
However, nearly 2 million jobs are still on leave. The vast majority of those jobs are in the industries most affected by the restrictions related to the pandemic: hospitality, live events and travel. To suggest that sites still forcibly closed by the government, still without a source of income, can contribute to staff salaries is a total misconception.
Delaying the easing of the lockdown should not be seriously damaging to the economy as a whole. The fallout from each new period of tight controls has been increasingly reduced as businesses and households have learned to adapt.
As the economy picks up steam after the latest shutdown, UK GDP is only 3.7% below its pre-pandemic level. This recovery from a drop of around 25% is a remarkable achievement, but there is still a lot of ground to be reclaimed. Some of the toughest sites will also find themselves in the last percentage points to regain.
The economy as a whole is expected to return to pre-crisis levels by the end of the year, but some sectors have much more time to recover than others. In retail and construction, the work is already done, with production already higher than before Covid-19. Professional sectors, such as IT, communications and banking, are not left out.
In contrast, the accommodation and food services industry – which includes pubs, restaurants and hotels – is still down 40% despite starting to make up for lost time in recent weeks. The arts, entertainment and recreation industries are still 32% below pre-crisis levels.
With the economy rebounding overall and some companies struggling to find enough staff – including in hotels – the Treasury could argue that a change in stance is warranted. Leave does not need to be a permanent feature of the UK labor market. But removing it too soon will destroy many businesses that would otherwise be viable after the pandemic.
The Chancellor should know, because Britain has been here before. Late last summer, when leave was last cut, Sunak came under pressure to provide targeted support to sectors that continue to struggle with restrictions.
At the time, the Chancellor launched the idea of sectorial support in the long grass, arguing that it was too difficult to decide on which companies should receive financial aid.
This was problematic, we were told, when individual businesses spanned multiple sectors – like a supermarket with an on-site cafe. Depending on where the lines have been drawn, vendors might lack help, like an ice cream maker with sales to theaters and cinemas – technically not hospitality but depends on it.
Sectoral support programs such as the £ 1.57 billion Cultural Recovery Fund, VAT cuts for hotels and business grants for the hardest hit businesses have been rolled out. But the most comprehensive support measure, leave, remains a general policy and will be sorely missed by companies in the hardest hit sectors.
The Treasury had a full year to consider these matters, and it was always clear that this problem would come back. So why has the Chancellor made no apparent progress? With delays affecting some businesses more than others, it is time for the Chancellor to think again. A one-size-fits-all approach will not work.