Economists have urged the chancellor to extend the furlough scheme and ramp up support for businesses and workers amid rising concern that rapidly growing infection rates from Covid-19 will force the government to impose a national lockdown, triggering a double dip recession.
With the furlough scheme due to end on Saturday and unemployment expected to increase sharply in the run-up to Christmas, Rishi Sunak is under pressure to extend the Treasury’s protection measures beyond the levels announced last week, or risk higher rates of business closures and an economic slump.
Two of the world’s largest economic consultancies, Capital Economics and Oxford Economics, said Sunak’s rescue policies were inadequate to meet the threat of a rising infection rate and must be upgraded if lockdown measures are extended.
Lord Skidelsky, emeritus professor of political economy at Warwick University andbiographer of John Maynard Keynes, and Lord Jim O’Neill, a former City economist and Treasury minister, told the Guardian the government must increase its spending to prevent a significant rise in unemployment.
Ministers should agree to boost funds for retraining and skills to support new businesses that emerge following the pandemic, they said.
Skidelsky said: “The government needs to extend the furlough scheme and all its other protection measures. But even with generous support there are going to be many redundancies as the economy slows down and the government needs to extend its support to training and skills,” he said.
O’Neill warned that businesses prevented from opening, either by tier 3 restrictions or a more general lockdown would go bust unless the government ditched Sunak’s complicated Job Support Scheme, designed to replace the furlough, and moved to a simple assessment of each firm’s income before the pandemic.
“Many of these firms have already taken on huge debts to get through the year. If the government says it will replace their income, then they stand a chance of making it through the winter as well,” he said.
Signs that the recovery has already begun to peter out have emerged in recent weeks from surveys of high street spending and consumer confidence. A surge in spending during August and September went into reverse in October, according to the CBI’s monthly barometer of the retail industry.
Experts from the International Monetary Fund, who will report on their twice-yearly health check of the UK economy on Thursday, are expected to urge the government to set aside concerns about rising debt levels and increase spending to tackle the second wave of the virus.
The IMF boss, Kristalina Georgieva, will say the UK is among those countries best placed to borrow cheap funds to support the economy through the winter and keep the infection rate low.
Sunak’s original furlough scheme, the Job Retention Scheme, paid up to 80% of wages for workers who could not work up to a maximum of £2,500 a month, ends on 31 October. It will be replaced by a Job Support Scheme on 1 November that pays up to 62% of a workers wages for the time they are away from their job, though they must work at least one day a week.
The chancellor will set out the government’s spending plans for the next 12 months in a statement to parliament, announced for 25 November, the Treasury said on Wednesday.
A Treasury spokesman said: “Throughout the crisis we have acted at speed to offer unprecedented support to protect millions of jobs.
“Tackling the virus and protecting jobs remain our absolute priorities and our Plan for Jobs, including an updated Jobs Support Scheme, will help more businesses safeguard jobs as we head into the winter.”
Martin Beck, a senior UK economist at Oxford Economics, said the government needed to announce a “bigger and bolder” rescue package to protect the economy during the expansion of tier 3 measures or a national lockdown.
He said that while many people had adjusted their work to cope with social distancing and working from home, tighter restrictions would prove devastating for many businesses without an extension of the furlough scheme.