When Chancellor Riski Sunak unleashed a colossal package for business earlier this week, with over £350bn in loans, grants and tax cuts, many thought he couldn’t top it. Today, he did. Shifting his focus from businesses to employees – especially thinking of those in the hospitality, leisure, retail and travel sectors – Sunak unveiled an extraordinary package, which will cover up to 80 per cent of all salaried workers’ wages (up to £2,500 per month, around the UK’s medium income).
This is an unprecedented intervention on the part of the government that will see the state pay private businesses – big and small – to retain their employees for the foreseeable future. The ‘Job Retentions Scheme’ is not targeted specifically at vulnerable sectors – presumably because any targeted scheme requires some form of means testing, which takes time. As a result, every employer can now apply to have a large part of their employees’ salaries covered by the state.
It’s impossible to know how much this pledge will cost in total. The Chancellor has offered wage support for three months, but there is no limit to what the Government will spend, and the scheme may be extended depending on how long it takes to tackle Covid-19. Other pledges are easier to add up though, such as the ‘£30bn injection’ (which includes deferring VAT payments until the end of the financial year) and the increases to the Universal Credit standard allowance and the working tax credit, which will both be increased by £1,000 a year.
The Government has calculated, if the economy is to rebound quickly after Covid-19 is under control, that it not only needs to protect people in the short-term from a sudden loss of income, but to ensure people return to work on day one – and that’s only possible if they’re still employed. But keeping businesses and their employees afloat throughout this crisis is no cheap feat: the Chancellor’s business pledges earlier this week were already racking the deficit back to up post-2008 crisis levels. Now we are going a lot further, with no cap in sight.
If there were any doubts that the Government would do whatever was necessary (read: spend what’s necessary) to support Britain through the economic consequences of Covid-19, they are now surely put to rest. But gone (again) are the days of relatively low Budget deficits and concerns about the national debt. Getting the health service and the economy through this pandemic are now the government’s priorities – but these unprecedented measures will need to be accounted for in the not-to-distant future.
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