Sunak Says Many More U.K. Jobs Will Go Despite Crisis Support

Chancellor of the Exchequer Rishi Sunak set out a plan to limit the “tragedy” of job losses this winter as coronavirussurges across the U.K.

In an emergency statement to Parliament, Britain’s finance minister announced measures to subsidize wages for part-time workers, extend loans for companies affected by lockdown rules, and cut sales taxes for longer.

Many more job cuts are inevitable as the economy undergoes “a more permanent adjustment,” he said. With virus restrictions persisting for at least the next six months, independent forecasts suggest unemployment will rise toward 10% by the end of the year. “That is a tragedy,” Sunak said.

“I cannot save every business, I cannot save every job,” he warned. “No chancellor could.”

Sunak’s ‘Winter Plan’ At-a-Glance
  • A six-month “Job Support Scheme” to subsidize the wages of people in part-time work
  • Extended loans for companies hit by Covid restrictions, with extra flexibility for repayments
  • An extended reduction of value added tax to 5% for the hospitality and tourism industries
  • Fresh support for the self-employed

In a sign of the disruption and uncertainty the resurgent virus threatens to bring to the country, Sunak dropped plans for a full-scale fall budget, instead announcing a series of steps to support businesses and jobs. Prime Minister Boris Johnson imposed fresh curbs on the public earlier this week and warned further measures may be needed in the next six “difficult” months.

The centerpiece of Sunak’s announcement is a new jobs support program to succeed the furlough policy that ends on Oct. 31 and has supported more then 9 million jobs at a cost of 39 billion pounds ($50 billion) so far.

Under the furlough program, the government paid people who were unable to return to their workplaces because of Covid restrictions as much as 80% of their wages.

The replacement policy will pay subsidies to workers who are able to return to their jobs for at least a third of their normal hours. Their employer will pay the hours they work, and the government and employer will each pay a share of wages for the hours they don’t work to help top up their earnings.

It means workers on the new program will be guaranteed at least 77% of their normal wages. But it also means employers could be on the hook for 55% of wages for an employee working just a third of their normal time.

“You can’t wave a magic wand and unemployment will stop rising anymore,” Philip Shaw, chief economist at Investec Bank Plc, said by phone. “The measures are a sensible middle ground for the government to prevent the economy falling off a cliff.”

What Bloomberg’s Economists Say

“The big risk is employers shun his new wage subsidy scheme rather than paying up for employees on reduced hours. A spike in unemployment as the economy begins its adjustment to a new normal appears inevitable.”

-Dan Hanson and Jamie Rush. Read theirU.K. INSIGHT

“The sources of our economic growth, and the kinds of jobs we create will adapt and evolve to the new normal,” Sunak said.

The chancellor promised to extend grants to the self-employed “on similar terms and conditions as the new jobs support scheme.”

Sunak also deferred the deadline for new applications to a set of government-backed loan programs until the end of the year, and said the borrowing could be repaid over 10 rather than six years. More than a million of the smallest companies taking out “bounceback loans” can now choose to make interest-only repayments and suspend payments altogether for as long as six months, he said.

There is extra help for businesses such as pubs and restaurants, which are required to close at 10 p.m. from Thursday. With millions of workers at risk of losing their livelihoods if the crisis worsens, Sunak extended a VAT cut for the industry that was due to end Jan. 12 until the end of March. That means VAT will remain at the reduced rate of 5% rather than 20%.

BOE’s Bailey Applauds Sunak’s New Jobs Aid as Prompt, Decisive

Half a million other businesses which deferred 30 billion pounds of VAT payments until March will now be allowed to spread them over 11 repayments, with no extra interest.

Damage Limitation

Sunak’s measures aim to prevent a gradual increase in job losses from snowballing into a crisis comparable to Margaret Thatcher’s time as premier, when unemployment climbed to almost 3.3 million. His actions will likely be followed by the Bank of England, which is widely anticipated to deploy another round of monetary stimulus as early as November.

Economists expect the latest restrictions on businesses to damage the economic rebound. If the government goes further and imposes blanket lockdown restrictions for two weeks at the start of October, output would shrink 3.9% in the fourth quarter, according to Bloomberg Economics.

Sunak and Johnson are trying to strike a balance between getting Covid-19 under control and keeping enough of the economy open to avoid mass redundancies. The first peak of the disease earlier this year hit the U.K. with the highest death toll in Europe and the country’s deepest recession in more than a century.

— With assistance by Andrew Atkinson, Fergal O’Brien, Emily Ashton, Joe Mayes, Stuart Biggs, Carla Canivete, Dana El Baltaji, Edward Evans, Flavia Krause-Jackson, and Lucy Meakin

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