Chancellor warns of ‘recession like we’ve never seen’ after record spike in jobless claims

Rishi in the Commons

The chancellor has warned of a “severe recession the likes of which we haven’t seen” as official figures showed a record rise in unemployment claims.

Rishi Sunak told a parliamentary committee that there was “more hardship to come” after the data showed 856,500 people submitted jobless benefit applications in April as the coronavirus crisis took its toll.

That put the claimant count at its highest level since 1996 at 2.1 million in total, according to the Office for National Statistics – with the monthly increase in the measure the highest ever recorded.

Yet the data only covered the first few weeks of the lockdown and Mr Sunak indicated that despite its “unprecedented” effort to prevent mass unemployment, the government “won’t be able to protect every job and every business”.

Mr Sunak told the Lords Economic Affairs Committee: “We are already seeing that in the data and no doubt there will be more hardship to come.

“We are likely to face a severe recession, the likes of which we haven’t seen and of course, that will have an impact on employment.”

The Treasury is already bankrolling 80% of wages for eight million temporarily laid-off workers under its Job Retention Scheme, at a cost so far of £11bn – expected to rise to a net £50bn, according to the latest official estimate.

The scheme is designed to dissuade business crippled by the lockdown from permanently dismissing employees, with their salaries subsidised by the taxpayer until they can return to work.

But Mr Sunak conceded that it was “not obvious that there will be an immediate bounce-back” and that the “jury is out” on the scale of long-term scarring that the economy is likely to suffer.

The chancellor’s warning came hours after the ONS data – the first illustration by official figures of the impact on jobs since the lockdown was imposed on 23 March.

The report’s headline figures showed an increase in unemployment by 50,000 to 1.35 million over the three months to March, while the unemployment rate actually slipped back from 4% to 3.9%.

But separate data for April revealed the stark claimant count numbers, illustrating what is likely to be just the start of the wave of joblessness caused by the pandemic.

The ONS also released “experimental” figures, collated with HM Revenue and Customs (HMRC), showing the number of UK paid employees fell by 1.6% in April compared with March.

That equates to around 450,000 workers.

Figures also indicated that average pay growth in April turned negative – with a 0.9% decline compared to the same month a year ago.

Jonathan Athow, ONS deputy national statistician for economic statistics, said: “While only covering the first weeks of restrictions, our figures show COVID-19 is having a major impact on the labour market.

“In March employment held up well, as furloughed workers still count as employed, but hours worked fell sharply in late March, especially in sectors such as hospitality and construction.

“Through April, though, there were signs of falling employment as real-time tax data show the number of employees on companies’ payrolls fell noticeably, and vacancies were sharply down too, with hospitality again falling steepest.”

Hours later, the Treasury published latest figures on its furlough scheme while also disclosing that £22bn had been disbursed under its separate support schemes for stricken companies.

Included was lending under the Bounce Back scheme for small firms which had topped £14bn, it was disclosed, up from £8.4bn in the previous week.

The Treasury also confirmed it was expanding the Coronavirus Large Business Interruption Loan Scheme (CLBILS) to enable larger firms to access up to £200m from next week – up from £50m.

Despite the support the Office for Budget Responsibility has warned that unemployment could surge to 10% in the second quarter of the year.

Labour said the latest claimant figures showed that the government’s support schemes had fallen short.

Shadow work and pensions secretary Jonathan Reynolds said: “Unfortunately these claimants will now discover the UK has one of the weakest out-of-work safety nets in the developed world.

“We support the changes the government has made so far during the outbreak, but they do not match the scale of the crisis.”