Without an urgent strategy, we are in danger of sleepwalking into an unemployment crisis
The government needs to shift spending away from wage subsidies, towards creating job and training opportunities for those most at risk of unemployment, writes Lord Forsyth. | PA Images
As it stands, the government’s Covid support schemes are not enough to stop the unemployment crisis. Investing in social infrastructure could be key to unlocking our economy
The Covid-19 pandemic has caused the worst economic shock in 300 years. The impact has not fallen fairly, or equally, with the young and the poorest hit hardest.
Lockdowns have been the midwives of unemployment and bankruptcy in sectors which interact face to face with customers, whilst financial services and online enterprises have been much less severely damaged. People under the age of 25 are more than two and a half times more likely to work in sectors that have been shut down and the lowest earners are less likely to work from home. Of course, the crisis has been miserable for everyone, but unlike previous recessions the economic impact has been very unevenly distributed.
Today the Lords Economic Affairs Committee publishes its report, Employment and COVID-19: time for a new deal, which sets out a plan for recovery which supports those who have been affected most.
The government response to date has been unprecedented, with spending reaching 280 billion pounds in order to keep businesses afloat and people in work. But this is not enough.
The government needs to shift spending away from wage subsidies, towards creating job and training opportunities for those most at risk of unemployment in the sectors which need workers now.
[Government] is assuming that the vaccine news means that the economy and labour market will no longer need support, but that is wrong
We recommend substantial investment in social and childcare, which are in urgent need and have been neglected for too long by successive governments. Urgent repairs are needed to our broken welfare safety net, including making the extra £20 on Universal Credit permanent and extending it to everyone on legacy benefits.
There must be a new job, skills and training guarantee for every youngster and help for businesses to cope with the massive debts weighing down balance sheets and frustrating future investment.
Targeted support for the self-employed is vital. More than a billion pounds has been paid to businesses largely unaffected, whilst 500,000 people have received little or no support. There must be a system to ensure infrastructure projects which can be started quickly are prioritised.
The Chancellor appears to be under the impression that the economic crisis will be short lived and that we can rely on growth in the spring. If that is so he is mistaken. We are in danger of sleepwalking into an unemployment crisis and we need a strategy for what comes next now. Our report addresses this need and sets out a comprehensive plan to help save the prospects of a generation of young people.
Since the autumn the overriding goal of the Treasury has been, as Jonathan Portes put it to our Committee, to get “back to normal” as quickly as possible. This explains the setting of arbitrary deadlines on wage support which led the Treasury to be serially wrong footed by the predicted course of the virus. The result was huge uncertainty for business.
The government is repeating this mistake by setting another deadline for wage support and having no plan for what should come next.
It is assuming that the vaccine news means that the economy and labour market will no longer need support, but that is wrong. The sectors with jobs that historically led labour market recoveries - hospitality, retail and leisure - have been crushed and are likely to be in a worse state in the spring when unemployment will spike.
The OBR found that the economy will not return to pre-pandemic levels until the end of 2022 and GDP will be 3% smaller by 2025 than it would have been otherwise.
The Chancellor is going to have to set out another Winter Economy Plan or face a huge unemployment problem. The news on vaccines is wonderful, but this is a cure for the health crisis not the economic and jobs crises which are the toxic legacy of the pandemic.
Lord Forsyth is a Conservative member of the House of Lords and chair of the Lords Economic Affairs Committee.