Experts have warned the UK will face ‘hefty tax rises’ by the middle of the decade to pay for the coronavirus crisis as Rishi Sunak today unveils his plans to replace furlough and stave off massive job losses over the winter.
The Chancellor will announce his new Winter Economy Plan at lunchtime and its centrepiece is expected to be a wage subsidy scheme which will see the Government top up the pay of people who can only work part-time.
Mr Sunak’s multi-billion pound package of support is also likely to include further VAT cuts and the extension of emergency loan schemes for struggling businesses.
The closure of the Government’s furlough scheme at the end of October has sparked dire warnings of waves of redundancies in the coming months with the Treasury due to focus its firepower on saving viable jobs rather than ‘zombie’ ones which have no future.
Paul Johnson, the director of the respected Institute for Fiscal Studies think tank, said the scale of the coronavirus crisis means Mr Sunak is ‘still very much in blank cheque territory’ as he suggested that the UK could end the year with two million fewer jobs than it had at the start.
But Mr Johnson warned that the Government’s spending spree will eventually have to be paid for as he predicted ‘pretty hefty tax rises’ likely by the mid-2020s.
Official statistics published last month showed public sector debt had gone above £2 trillion for the first time in history as the Government was forced to borrow cash to keep UK plc afloat.
The Office for Budget Responsibility’s most recent forecast suggested public sector net borrowing for the financial year April 2020 to April 2021 could be anywhere between £263 billion to £391 billion. Mr Sunak’s new measures will only worsen the state of the public finances.
Health Secretary Matt Hancock today reiterated that the latest support package will not be enough to save everyone from redundancy and all firms from closure as he said ‘sadly we’re not able to protect every job and every business’.
The Chancellor yesterday cancelled plans for a full-scale Budget in November, with sources saying it was ‘not the time’ for a long-term strategy.
Instead he will map out an emergency plan designed to help firms cope with new Covid restrictions which Boris Johnson has warned will last for six months.
Whitehall sources last night said the Chancellor’s plans would include a new wage subsidy scheme modelled on a German initiative that helps fund salaries at firms where there is only enough work to go back part-time.
Government officials are looking at whether the state can help cover the costs for staff able to do 50 to 60 percent of their normal hours, according to the Financial Times, which would be considerably cheaper to run than the furlough scheme that has cost almost £4 billion in the last four weeks.
By comparison, the German kurzarbeit (short- working) model would cost around £500 million a month.
The so-called ‘flexible furlough’ scheme would allow for companies to hack back workers’ hours while keeping them on their books, with the Government making up the difference but with a cap for salaries up to around £30,000, according to the Sun.
Ministers are also looking at a bailout scheme for struggling sports clubs hit by a ban on crowds. This year’s VAT cut for the hospitality and tourism industry to 5 percent, which has cost £4 billion, was due to last until January but will now run until the end of March, The Times reported.
Chancellor Rishi Sunak will today set out his Winter Economy Plan as he tries to stop an expected wave of job losses over the winter months
The Office for National Statistics revealed last that public sector debt was now above £2 trillion for the first time ever with Mr Sunak’s proposals today likely to worsen the picture
Furious Tory MPs have turned on ‘authoritarian’ Boris Johnson as he ordered the British public to obey his draconian new coronavirus restrictions – or face an economically devastating second national lockdown
What is the German-style system that Rishi Sunak could use in place of the furlough scheme?
Germany has used its Kurzarbeit job subsidy measures during the coronavirus pandemic and has recently extended its use until the end of 2021.
Unlike the British furlough programme, an emergency scheme which pays companies to pay employees not to work, the Kurzarbeit system, which already existed before the pandemic, surrounds short-time working.
It allows employers to reduce employees’ hours while keeping them in a job.
The government pays workers a percentage of the money they would have got for working those lost hours.
According to the Munich-based Ifo Institute for Economic Research, at the height of the pandemic, half of all German firms had at least some of their staff on the scheme.
Influential British political figures including former prime minister Gordon Brown have urged the government to bring in such a scheme, or a similar French-style system, after the furlough scheme ends in October.
Mr Sunak’s unveiling of his Winter Economy Plan came as:
- Mr Hancock said he did not rule out the prospect of telling university students not to go home at Christmas but that ‘we haven’t reached that point yet’.
- The Health Secretary said almost 10,000 people a day are now contracting coronavirus, although still fewer than the ‘100,000 per day’ estimated during the spring peak.
- The Government finally launched its long-promised coronavirus app across England and Wales.
- Nicola Sturgeon has written to Boris Johnson calling for urgent four-nation talks to tighten lockdown restrictions to tackle the spread of coronavirus.
- A group of MPs urged the Government to take action to address the health, wellbeing and employment arrangements of people living with the effects of ‘long Covid’.
- The Government is considering introducing a new traffic light system that will send automatic alerts to people’s mobile phones to trigger local lockdowns.
The Government’s furlough scheme has helped support almost 10 million jobs during the crisis, covering up to 80 per cent of an employee’s wages up to a maximum of £2,500 a month.
It is now in the process of being wound down and will formally close at the end of next month after racking up a bill of more than £39 billion.
Mr Sunak has faced pressure to extend the scheme but he is expected to press ahead with scrapping it and will use the wage subsidy scheme to pick up some of the slack.
Mr Johnson said the end of furlough means there will be a ‘big rise in unemployment’ in the coming months.
He told the BBC’s Radio 4 Today programme: ‘We have already seen something like a reduction of nearly three quarters of a million numbers of jobs in terms of the number of people on payroll and then we have got at least another two million or so on furlough not working.
‘Some of those will likely be supported by this new scheme but not all of them.
‘That implies I suspect by the end of the year that we will have something like, I don’t know, but maybe two million jobs fewer than we had at the beginning of the year, although oddly that doesn’t seem to be translating at the moment into the official unemployment figures.’
Asked whether he believed Mr Sunak should be writing a blank cheque to save the economy or trying to protect the health of the public finances, Mr Johnson said: ‘I think we are still very much in blank cheque territory. I thought it was very bizarre I have to say a month or so ago when everyone was talking about big tax rises being announced this autumn.
‘I don’t think that was ever on the cards. We are still in a position where the economy is extremely weak, where the Government as you know is increasing restrictions and where the absolute focus needs to be on supporting the economy.
‘Remember, interest rates are at all time lows, it is actually extremely cheap for the Government to borrow and we are in that crisis moment.
‘That means clearly we are going to have to deal with this at some point but at some point does not mean this autumn and it might not even mean next year.
‘But I think later on in the 2020s we are going to be seeing some pretty hefty tax rises to deal with this. But it really is later on, it is not now.’
New ‘traffic-light’ lockdown system that will send automatic alerts to phones set to be used to trigger local restrictions
A traffic light system that will send automatic alerts to people’s mobiles is set to be used to trigger local lockdowns.
Local infection rates will be used to split parts of the country into one of three categories that will determine the restrictions in place in the region under the plan.
This system will work in tandem with the NHS Test and Trace app, which includes a feature where users can scan a barcode to check in and out of bars and restaurants.
Users will also be sent messages when lockdown conditions change due to shifts in the infection rate, the Daily Telegraph reported.
The new plan was approved at a meeting of key cabinet ministers last week and is now waiting for the Prime Minister’s approval.
It is hoped that the system will work alongside the new raft of restrictions announced by Boris Johnson on Tuesday, if he signs off on it.
A three-tier system is seen as being clear and provide a simple way for people to know what they can and cannot do in their areas.
Mr Hancock said the economic support to replace the furlough scheme, due to be announced later today by Chancellor Rishi Sunak, had been set in train since the summer.
He told Sky News: ‘What you’ve seen over the past nine months since this crisis started, you’ve seen an unprecedented amount of economic support to keep jobs going, to support businesses that have been terribly hit by this, and we’re determined that that should continue.’
Asked why the Chancellor has waited until nearly October to announce the new measures, Mr Hancock said: ‘We’ve said throughout that sadly we’re not able to protect every job and every business.
‘But I think in terms of the timing of this, we’ve been working on the winter plan for the economy and options in case cases started to go up again since the summer and with the Prime Minister having set out the next steps in terms of the health side on Tuesday, now the Chancellor is coming to the House today – two days later – to set out the economic package for the winter plan that goes with that’
Mr Hancock told the BBC that the Government would ‘put in the absolute maximum economic support’ it could.
Asked why Mr Johnson had suggested the latest coronavirus crackdown could last for six months, the Health Secretary said: ‘I think it’s really important to level with people. I think it’s really important for us in Government, leading people through this very difficult time, to be straight with people about what we see as the problems ahead and the timetable ahead.
‘We want to give hope with what’s coming – you know what, we can get through this – of course we do. But we also need that hope to be grounded in realism, because if it’s not grounded in realism, then it’s not true.’
Treasury sources said the Chancellor had rejected calls to extend the £35billion furlough scheme, despite warnings that its closure at the end of next month could result in more than one million redundancies.
‘The Chancellor has shown he has been creative in the past and hopes that people will trust us to continue in that vein,’ a source said. ‘Giving people reassurance and businesses the help they need to get through this is uppermost in his mind.’
Questions had already been raised over whether the Chancellor’s set piece autumn announcement, broadly penned in for November, would go ahead
Anger as NHS Covid-19 app does NOT work on iPhone 6 or older models
Frustrated Britons complained today that the NHS Covid tracing app cannot be downloaded on the iPhone 6 or older models – excluding millions of people from the government’s flagship service.
Social media users shared attempts to download the app on their iPhones only to see an error message saying it required iOS 13.5 or later.
This operating system can only be downloaded on the iPhone 6S and newer models – excluding any handsets that are more than five years old.
The app – which has arrived four months late – can also be used on Android phones, where it appears to be working with no issues.
But millions of iPhone users are now set to be excluded from the service, which Age UK today warned would include many elderly people who tend to have older models.
Caroline Abrahams, the charity’s director, said: ‘It’s unfortunate that you will need a relatively new smartphone to use the NHS App since many people of all ages don’t have one, older people especially.’
Mr Sunak played a pivotal role in helping persuade Mr Johnson not to move to an immediate second lockdown this week.
But the decision to tighten Covid restrictions on the hospitality sector and order millions of office staff to work from home until spring has put him under huge pressure to bring forward more support.
Today he is expected to warn that the Treasury does not have a bottomless pit of money to prop up the economy indefinitely – and cannot save every job.
Allies said he would be ‘very honest with people’ about the ‘difficult trade-offs’ the Government faces as it tries to deal with the twin challenges of surging Covid cases and a battered economy.
‘It is not about health versus the economy, but about the balance between keeping people in jobs and finding them new ones,’ the source said.
The Treasury was tight-lipped about the Chancellor’s plans last night. But it is understood he will press ahead with a version of Germany’s ‘kurzarbeit’ scheme, which ensures workers who have had their hours cut by struggling firms receive a minimum of 60 per cent of their lost pay.
A similar scheme proposed by the Confederation of British Industry would see subsidies for firms that can offer staff at last 50 per cent of their normal hours, with the cost for non-working hours shared equally by the company, the Treasury and the employee.
The final scheme is likely to be significantly cheaper than furlough, which has paid 80 per cent of the wages of staff unable to work and helped protect 9.6million jobs. But it will fall short of demands from Labour and the unions for the furlough scheme to continue indefinitely.
In the Commons yesterday, Mr Johnson was repeatedly urged to extend the furlough scheme in the wake of his decision to tighten Covid restrictions for at least six months.
Labour leader Sir Keir Starmer urged him to ‘stop and rethink, support the businesses affected, not to withdraw furlough’.
Mr Johnson said the furlough scheme had ‘already been extended’ once, adding: ‘I do not think that it would be sensible simply to extend the current existing furlough scheme in its present form beyond the end of October.
‘But we will do everything we can to support businesses and to support those in jobs and, indeed, the self-employed.’
Mr Johnson said the Government had already paid out £160billion to prop up the economy, with business support more generous than in most other countries.
Entrepreneur and former Pizza Express boss Luke Johnson told the BBC’s Newsnight programme that closure of the furlough scheme at a time when the economy was still operating under tight restrictions would lead to mass redundancies next month. ‘I would estimate of the three million [still on the furlough scheme], at least a million… will be made redundant,’ he said.
The decision to cancel the Budget is a blow to the Treasury’s hopes of getting the public finances back on a more even keel.
Mr Sunak had been considering tax rises to help offset a budget deficit expected to top £300billion this year. But decisions on tax will now have to be delayed until next year.
The cancellation of the Budget could also prove a blow to the aviation industry, which had been hoping for a cut in Air Passenger Duty.
A Government source last night told the Mail that ministers were also looking at a rescue package for threatened football and rugby clubs.
‘We cannot have a situation where local football clubs are going to the wall,’ the source said. ‘They and other similar sports clubs are critical parts of their communities.’
It’s criminal! Amid howls of anger from business chiefs over SIX-MONTH crackdown that threatens millions of jobs, one boss delivers his damning verdict…
By Daniel Martin, Tom Witherow and Lucy White for The Daily Mail
One of Britain’s top business bosses yesterday led a backlash against ‘criminal’ Covid curbs that he claims could threaten millions of jobs.
Julian Metcalfe, the founder of sushi chain Itsu and sandwich shop Pret a Manger, tore into No 10 for its decision to impose six-month restrictions.
Nearly a quarter of pubs and restaurants fear they will fail by the end of the year unless Chancellor Rishi Sunak unveils significant support for them, a poll found.
Shoppers and workers get their takeaway from Pret A Manger in Chelsea while wearing masks before it becomes compulsory in shops in England on Thursday
A survey by the British Beer and Pub Association, UK Hospitality and the British Institute of Innkeeping exposed concerns that as many as 540,000 jobs could go over the next few months.
This was before the latest restrictions for pubs, restaurants and the wider hospitality sector were announced.
Kate Nicholls, chief executive of UK Hospitality, added: ‘The future of the sector is still very much in the balance’
Boris Johnson ordered all pubs and restaurants in England to close at 10pm from tonight and made table service mandatory. In addition, he ordered people to work from home if they can – a U-turn on his call for staff to return to the office in a bid to shore up ailing city high streets.
Responding to the restrictions, Mr Metcalfe said he did not know whether Itsu would survive the measures. ‘The repercussions of this six months is going to be devastating to so many people, to local councils, to industry, to people all over our country,’ he told Radio 4’s World At One.
‘We have just not begun to touch the seriousness of this. People who work in hotels, restaurants, takeaways and in coffee shops are devastated. A great many are closing down – we’re losing thousands upon thousands of jobs. How long can this continue, this vague ‘work from home’, ‘don’t go on public transport’? The ramifications of this are just enormous.
‘I hate to think how many people will be made redundant – it’s just heartbreaking. It’s hundreds of thousands of hospitality businesses, and the knock-on effects of people who look after them and service them and bring them food and clean them. It’s millions of jobs.’
Mr Metcalfe turned his fire on Mr Johnson, accusing him of announcing a policy of ‘exaggerated nonsense’.
‘To turn to an entire nation and say ‘stay at home for six months’, and to spout off some Churchillian nonsense about we’ll make it through – it’s terribly unhelpful to this country,’ he said.
Boris Johnson ordered all pubs and restaurants in England to close at 10pm from Thursday night and made table service mandatory. Pictured, people drinking outside in Soho, London, on Wednesday night
Emma McClarkin (pictured), chief executive of the British Beer and Pub Association, said: ‘This research shows pub businesses were already teetering on the edge’
‘This talk of six months is criminal. It should be ‘we will review the situation each week, each hour’ – not ‘everyone stay home for six months and let’s see where we are’. Because the scientists are all disagreeing with each other.’
And while Mr Metcalfe welcomed Mr Sunak’s furlough scheme, he said: ‘We can’t as a country go on borrowing, borrowing, borrowing money, pretending it doesn’t matter…. Of course we’d love furlough to continue, but it can’t.’
Major firms including HSBC and Goldman Sachs have halted their return-to-the-office programmes, leading to increased fears for pubs and restaurants.
Citigroup has also eased its return to the office programme and has asked staff to exercise judgment. Barclays and Lloyds are also set to reduce their back to workplace programmes.
The Chancellor has drawn up plans to help hospitality firms, but businesses fear it won’t be enough.
The survey by the three trade bodies found that one in eight hospitality staff has already been made redundant, and more jobs in the sector are expected to be lost when the furlough scheme ends.
A survey by the British Beer and Pub Association, UK Hospitality and the British Institute of Innkeeping exposed concerns that as many as 540,000 jobs could go over the next few months. Pictured, people drinking outside a bar in Blackpool on Wednesday night
Julian Metcalfe (pictured), the founder of sushi chain Itsu and sandwich shop Pret a Manger, tore into No 10 for its decision to impose six-month restrictions
On average, businesses believe their workforce will be 25 per cent lower by February 2021 compared to February this year.
Emma McClarkin, chief executive of the British Beer and Pub Association, said: ‘This research shows pub businesses were already teetering on the edge.
‘Now the Prime Minister has announced even more restrictions for them, it is clear much more support will be needed from the Government to ensure they survive.
‘Only by taking these measures can the Government save our pubs, hospitality businesses and as many as 540,000 jobs.’
Kate Nicholls, chief executive of UK Hospitality, added: ‘The future of the sector is still very much in the balance. The additional restrictions announced this week place even further burdens on a sector that is operating with razor-thin margins and needs all the help it can get. It is vital that these restrictions are reviewed regularly.’
People drinking outside the Old Compton in Soho, London, Wednesday night. Catherine McGuinness, from the City of London Corporation, said safety had to come first, but expressed disappointment at the blanket call for office workers to return to working from home
The chief executives of Deliveroo, KFC and Pizza Hut last night wrote to the Chancellor urging him to ensure that incomes remain stable, an extension of VAT reduction on food for six months, and an extension of business rates relief.
Catherine McGuinness, from the City of London Corporation, said safety had to come first, but expressed disappointment at the blanket call for office workers to return to working from home.
She told Radio 4’s Today programme: ‘It’s clear that this virus isn’t going to go away quickly so we need to find a way of living with it that doesn’t cripple our economy.’
Last night a Government spokesman said: ‘The aim is to reduce transmission in areas where people are enclosed and where they might come into contact with people they don’t know. This can include public transport and can include places that are not fully Covid secure. It is a way of reducing those chances transmission which is the name of the game.’
How much more of Britain will be boarded up now?
Commentary by Alex Brummer for The Daily Mail
The Chancellor’s emergency decision to cancel the November budget and instead unveil a new winter plan today to preserve jobs and support enterprise is an indication of the grave economic uncertainty this country now faces.
Uncertainty made far worse by the Government’s latest measures to contain the pandemic.
Rishi Sunak’s surprise autumn package, which comes after his July ‘Plan for Jobs’, shows that amid the havoc wreaked by Covid-19 and the Government’s cautious response to rising infections, the Chancellor is having to make decisions on the hoof irrespective of their financial and economic consequences.
Picture shows closed shops on Kensington High Street after coronavirus lockdown left retailers unable to sustain business
Closed down shop front on Golders Green Road in North West London. It is the second time in a year that a Chancellor has been forced to postpone the budget. Last November Sunak’s predecessor Sajid Javid called off his plans when Boris Johnson called the December election
Just a few weeks ago the big debate was about whether the time was right for raising taxes in the budget. But now, with the new clampdown on the hospitality sector and office working, any plans he had to deal with the ballooning budget deficit and debt have been put on hold until next year. Sunak is having to reach deep into his bag of tricks to prevent the economy going back into lockdown.
It is the second time in a year that a Chancellor has been forced to postpone the budget. Last November Sunak’s predecessor Sajid Javid called off his plans when Boris Johnson called the December election.
This time, the cause of the postponement is more chilling. The uncertainty caused by the Prime Minister’s doom-laden response to the virus this week has sapped business confidence and caused huge sectors of the economy – particularly the hospitality, sport and aerospace industries – to knock on the Treasury’s door for help.
Without measures from No 11, vast swathes of Britain’s high streets and city centres, already desolate, risk being boarded up forever. In making the latest batch of spending decisions, designed to keep the economy running, Sunak and the Treasury will almost be flying blind. Most government departments still have to submit their budget plans for 2021-22 and these are likely to be outlined in a spending review later in the Autumn.
A Vision Express was closed down in Camden High Street, London. The precise direction of the public finances and the outlook for the economy will not be fully revealed until the Office for Budget Responsibility releases its twice yearly forecasts in mid-November
Closed shop premises on King Street in Manchester city centre. Government borrowing in the current financial year is already projected to reach at least £300billion. Debt levels have reached an alarming £2trillion, which is the equivalent of a whole year of national output pre-Covid
The tragedy is that there were signs of a strong bounce in the economy in the summer – it recovered almost half the output lost during the first half of the year as we caught a small glimpse of the desired ‘V’ shaped recovery.
However, the combination of the end of furlough in October and imposition of new lockdown rules will deliver a devastating blow to output and jobs. Sunak is known to be concerned that if the furlough were kept in place he would be in danger of supporting ‘zombie jobs’ that will never come back. But he will also want to avoid a ‘cliff-edge’ in which millions suddenly find themselves out of work.
The precise direction of the public finances and the outlook for the economy will not be fully revealed until the Office for Budget Responsibility releases its twice yearly forecasts in mid-November. What we do know, however, even before Sunak’s latest expensive package of assistance, is that Britain now faces the worst peacetime budget crisis of modern times.
Government borrowing in the current financial year is already projected to reach at least £300billion. Debt levels have reached an alarming £2trillion, which is the equivalent of a whole year of national output pre-Covid. The Chancellor has spent £35billion so far on the furlough scheme and will be anxious to make sure the money has not been totally wasted.
One possible way of saving jobs would be to replace it with a German-style support scheme under which employers put people back to work on a part-time basis and the Government makes up the shortfall in wages, allowing the economy to gather momentum.
As the country rides the coronavirus roller-coaster, all the normal rules of predictable economic policymaking have been torn up. The Chancellor is having to adopt a dynamic approach of a kind never seen before.
But whatever happens tomorrow, when the pandemic has passed, Britain will face a massive task in restoring fiscal responsibility and credibility.