The Treasury needs to act boldly
by Alistair Darling, Chair of the Standard Life Foundation
Dealing with the coronavirus has been extremely difficult and it’s far from over. The fallout from the economic consequences is going to present even greater challenges, far greater than in 2008 when I was Chancellor. Many predict that we face 1980s levels of unemployment as businesses struggle to stay afloat. The government has rightly suppressed economic activity through the lockdown. The furlough scheme and self-employment support schemes have meant many have had their incomes protected. However, as government support is withdrawn, we can see a jobs crisis coming down the road.
Standard Life Foundation’s Financial Impact Tracker shows around three million households who have experienced a loss in income are not receiving, or expecting to receive, government support – whether that’s furlough, a self employment grant or Universal Credit. This is significantly higher than a recent Treasury Select Committee report highlighted and many will already be running down their savings and using credit to pay for essentials.
Even where families can access Universal Credit, it’s likely to result in a large fall in living standards. A report by Resolution Foundation funded by Standard Life Foundation out last month commended Universal Credit for how it has stepped up and met the huge influx of new claims in a way it was never designed to do. However, it contained a stark warning too - that whilst the median fall in disposable income if furloughed is just 9 per cent, that figure is 47 per cent if people lose their jobs and turn to Universal Credit. The shortfall is even greater for some households.
Prospects for families who can’t access government support are bleak. Two-thirds think it’s likely they’ll suffer a further loss of income over the next three months - four-in-ten think it’s very likely. Most lack any savings buffer, with half having savings of less than one month’s income. It comes as no surprise therefore that three-in-ten households in this group are struggling to pay for food and other day-to-day expenses.
The government needs to put in place a package of measures to get the economy going as we did in 2008. It will be difficult. A decade ago many found employment in the hospitality industry; now, it is one of the hardest hit industries and unlikely to get back on its feet quickly. There’s plenty for the government to invest in, they should look for shovel-ready projects, they could also start to tackle some of our long-term challenges, including investments which cut our carbon emissions.
Government urgently needs to look at how we get people back into work and come up with a credible plan for this at speed, using the valuable breathing space furlough and other interventions have given to plan ahead. Whilst people are currently furloughed, they should be encouraged to retrain for the jobs that will exist in the new economy, as it is likely many jobs will simply not be there for people to return to. It must also ensure the jobs created are good jobs, ones with security and decent pay. People need to be able to build up savings so they can increase their financial resilience. Government has a real opportunity to shape the British economy of the future, let’s hope they grasp it.
This article appeared in the Times on 25/6/2020