More than 1 million jobs could be lost by Christmas – Rishi Sunak should do more to protect them

The CEBR feared 1.5 million job losses before Rishi Sunak extended his Job Support Scheme. It may only save a relatively small number of them, James Moore writes

Rishi Sunak has acted to support firms hit by local lockdowns (Reuters)

Belatedly, Rishi Sunak has woken up to the need to offer support to sectors hit by renewed coronavirus restrictions.

Friday saw the chancellor adding some heft to the Job Support Scheme, his less generous replacement for the successful measures he really ought to have extended.

The steps he took were very necessary. Here’s why.  

Prior to the announcement that the government will pay two-thirds of the wages of employees at firms forced by law to suspend their operations, the Centre for Economics and Business Research (CEBR) raised its unemployment forecast. Published today, it suggests the UK will see an additional 1.5 million job losses by Christmas.

The number was produced in the wake of data from the Office for National Statistics (ONS), together with the results of its own Business Distress Tracker, produced in conjunction with Opinium.

The ONS numbers showed that between 7 and 20 September 11 per cent of businesses’ workforces were on partial or full furlough leave, amounting to 3.6 million staff in total.

This share had barely moved from the previous month, when the number was at 12 per cent, despite the increased contribution to wages employers were asked to make from September onwards. The CEBR therefore expects to see only a small reduction this month, to 3.3 million.

An important question raised by the scheme’s closure is: how many still furloughed workers are waiting to return to jobs that no longer exist? These are the people whom Sunak said would be given “false hope” were the scheme to be extended past the end of the month.

The Distress Tracker may have the answer: it found that businesses plan to lay-off more than a third (35 per cent) of furloughed workers after the scheme expires, which would translate into 1.2 million people.

Unfortunately, their numbers will be added to by the time the festive season rolls around because their redundancies will have malign impact on an economy already starting to hit the buffers. At the end of last week we learned that it grew by just 2.1 per cent in August, well short of the gaudy 8.7 per cent of July and the 6.6 per cent recorded in June as the first national pandemic lockdown was eased.

That number was well short of City forecasts, and the sluggish growth recorded that month meant UK plc was still 9.2 per cent smaller than it was when all this started.

A sudden spike in unemployment will hit demand through the household incomes of those affected getting hit. The CEBR thinks a further 300,000 jobs will go as a result, bringing us to the 1.5 million figure.

Sunak’s scheme should help with that, but probably not by as much as they government might hope.

It will serve as an important lifeline for pubs, restaurants, etc, but a rough early estimate from the CEBR suggests that it will save at most 150,000-250,000 of the 1.5 million jobs it originally expected to go by Christmas before the new scheme was announced.

The key problem with it was highlighted by the Institute of Directors. Local lockdowns will inevitably have what it calls “second order impacts”, which affect firms in other parts of the country and across the supply chain.

These firms will have only the original support scheme, which requires that workers put in at least a third of their hours before it can be claimed. It may not be enough to save them.

Where am I going with this? Sunak is understandably concerned about the cost of the support he’s offering to the exchequer and to the already battered, heavily in deficit, public finances, which will be considerable.

On the other hand, it is extraordinarily cheap for the government to borrow money right now. This gives Sunak options. He can afford to do more. To protect a reeling economy, he should do so, because while it may hurt the public finances in the short term, the long-term benefits will surely outweigh that brief pain.