The government must do more to protect the country from an economic shock that could result in output falling by a quarter and unemployment rising fivefold, a think tank has warned.
The Resolution Foundation said that the duration of the social distancing measures would determine the size of the economic fall. In its worst-case scenario — involving a year of restrictions — the economy would shrink by 24 per cent and unemployment would reach seven million.
While the government’s stimulus package is shielding the economy from a sharper downturn, the think tank called for it to be expanded. It said that the job retention scheme should allow furloughed workers to engage in safe part-time work.
It also urged the Treasury to broaden its loans for small businesses by allowing them to deduct the cost of adapting their business models from the principal. Loan repayments should be linked to pace of recovery in incomes, it said.
A three-month lockdown would push borrowing to 11 per cent of GDP, while a six-month period would lift it to 21 per cent. A 12-month lockdown would lift borrowing to 38 per cent of GDP this year, the highest level in modern history.
Richard Hughes, research associate at the Resolution Foundation, said: “As well as refining its crisis response, the government must plan a sustainable recovery. Ministers should remember that young people and low-paid workers have borne the brunt of the crisis and need to be at the heart of support to get the economy back on track.”
