Rishi Sunak spending big money to keep doomed businesses open would be 'complete folly', warns Ken Clarke

Former chancellor Kenneth Clarke warns of return of inflation and high interest rates, predicts 3 million unemployed by end of year

It would be “complete folly” for Rishi Sunak to keep spending fantastic sums of money to prop up doomed businesses which will fail in large numbers as the UK emerges from lockdown, former chancellor Kenneth Clarke has warned.

In a gloomy assessment of the UK’s prospects as Mr Sunak withdraws his package of financial supports Mr Clarke warned of the possibility of a financial crisis, a crash in the value of Sterling and the return of inflation and higher interest rates within two or three years of the coronavirus pandemic.

And the former chancellor, who was a minister in Margaret Thatcher’s government during the mass unemployment of the early 1980s, said he expected 3 million jobless – more than double the current total of 1.35m – by the end of the year as whole sectors of the “old economy” are unable to survive.

With Mr Sunak’s job retention scheme – which pays monthly wages of up to £2,500 to furloughed staff who would otherwise be laid off – due to be wound down from the start of August and ended in November, Mr Clarke told BBC Radio 4’s Today programme that the chancellor will face lobbying to “carry on pouring money into desperate efforts to keep existing jobs, existing businesses”.

But he said that while it was right to spend “stupendous amounts of money” to try to save jobs at the height of the Covid-19 outbreak, it was now vital for Mr Sunak to be “honest” with businesses.

“He can’t save every job,” said Mr Clarke. “He can’t afford to prop up dead businesses, only give temporary help to ones which are secure, well run and have a proper future.

“This autumn he’s going to be facing fantastic demands just to keep printing the money and handing it out to all those worse affected.

“He must resist that, because it’s complete folly. It’s no good us just carrying on, knowing that in two or three years’ time – we don’t know when – you will have the financial crisis, you will have the Sterling crash, you will even one day have the return of inflation and higher interest rates.”

Mr Clarke added: “I very much hope I’m wrong, but I think we’re going to have something like 3 million unemployed by the end of the year and early next year.

“I think we are going to see the very sad loss of a lot of businesses, particularly small and medium sized businesses.

“There are sectors of the economy – the old economy – which are not going to recover. Our city centres are not going to get back what they were.

“These are all dreadful things, but you are not going to be able to prop it up.

“The Thatcher government could not have saved the old dying economy, the Thatcher government had to concentrate on skills training, the new businesses, the future, how we organised for the future. Whether you agree with what the Thatcher government did or not, the same principles will have to be applied by a right wing government, a left wing government, or any government to have the slightest prospect of success.”