The largest state intervention in the UK’s peacetime labor market comes to an end this week when the government finally ends its leave support.
Barring an unlikely last minute change of mind, a wage subsidy that has been in place for 18 months and has cost £ 70bn will no longer be available to companies in difficulty.
Rishi Sunak, who announced the license in March 2020, believes the money has been well spent, but the economy is already far enough on the road to recovery to cope without the government helping with wage bills.
Most economists agree with the first half of the chancellor’s assessment, and see the permit as a good value given the catastrophic impact on businesses from the Covid-19 pandemic. At its peak in May 2020, the plan supported nearly 9 million jobs, covering 80% of wages up to a monthly cap of £ 2,500.
Sunak has made it clear that the damage that would have been done to the economy in the absence of the permit would have been colossal and intolerable. Viable companies would have gone bankrupt; skills would have atrophied; and the state would have paid a huge bill for mass unemployment.
Where there is less unanimity is what should happen next. The chancellor believes the job market now needs more personalized support that will match workers still on leave with more than 1 million job openings. It will announce plans for that in next month’s budget.
The TUC, which helped develop the license, says the government runs the risk of wasting all its good work and has called for the license to be used as the basis for a short-term permanent work program like the one seen in countries like Germany.
the Bank of england He is also increasingly nervous about what will happen to more than 1 million workers still on leave once employers are responsible for paying their wages in full. At its September meeting, its monetary policy committee (MPC) said the number of full-time and part-time jobs had continued to decline, but to a “substantially lesser degree” than it had estimated. in its quarterly update on the economy in August. .
The Bank said that the slower pace of people leaving the leave, coupled with the record of job vacancies, meant that the job market was difficult to read: “Key questions include how the economy will adjust to the closure of the leave scheme at the end of September; the extent, impact and duration of any change in unemployment; as well as the degree and persistence of difficulties in matching available jobs with workers ”.
Samuel Tombs, a British economist at Pantheon Macroeconomics, said he doubted the economy would grow fast enough next month for companies to fully re-employ the 1.6 million employees who were still on leave at the end of July. .
“While the unemployment rate will likely increase to only about 5% in the fourth quarter of 2021, from 4.5% in the third quarter, we expect underemployment to increase dramatically as people return to their former employers, but work. fewer hours than they would work the same as. As in the early 2010s, this ‘hidden’ slack reserve in the labor market should put considerable downward pressure on wages. “
The Bank will be closely monitoring the impact of ending the scheme, and the MPC noted that there was a “high option value” in seeing how the labor market coped before raising interest rates.
One thing is certain. In the event that rising infection rates require another lockdown on the economy, Sunak will be under heavy pressure to regain the license. A precedent has been set.
George is Digismak’s reported cum editor with 13 years of experience in Journalism