Fixing unemployment is the real test to come
Today everyone is asking Rishi Sunak to do two things — support our economy and safeguard the country’s finances. It’s a difficult balancing act. The danger is he is worrying too hard about a third priority — getting on with tax rises now so he can cut them pre-election.
The reason the balancing act matters so much is it’s all about jobs. Furlough has prevented huge losses thus far but the fear is still there — get the timing wrong and we could get a wave of unemployment and collapsed businesses before recovery really begins. Don’t put election timings ahead of the first two.
It is why extending furlough schemes until September, with a further gradual tapering of support, is the right thing to do. It may raise eyebrows, given that the Government’s roadmap suggests a lifting of all coronavirus-related restrictions by June 21.
But the Prime Minister has been careful to emphasise the easing of restrictions will be driven by data, rather than dates. And even once we fully reopen, many businesses may neither have the cash flow nor customers to unfurlough all of their staff, especially in London where tourism will remain decimated and many offices largely empty until September.
Unemployment peaked at 8.5 per cent in late 2011 but had fallen to 5.5 per cent by the time of the 2015 general election and continued to decline. It was a success story the Tories were able to trumpet again and again. And Sunak will want to repeat it.
A pandemic-induced recession is different to one triggered by a financial crash. The issue is not collapsing banks, but pent-up demand precipitated by restrictions on our ability to consume. That is why the OBR predicts that the economy will return to its pre-Covid level by early 2022.
But there is a hovering threat of inflation and many SMEs will be carrying forward vast debts and will need continued support to stop them collapsing in the coming months. It is why alongside the furlough scheme he has focused on Bounce Back and Business Interruption loans.
His tax cuts over the next couple of years will mean he will take a battering like all chancellors do when austerity hits. The real moment of reckoning is yet to come.
