Five key areas Sunak must tackle to serve up economic recovery | Business

Five key areas Sunak must tackle to serve up economic recovery | Business


The direction of travel is set. After four months of lockdown, Boris Johnson last week announced fresh plans to get more companies to bring employees back to workplaces across England from August. Getting life back as close to normal as possible by Christmas is the prime minister’s aim, but significant challenges remain on Britain’s road to recovery, as was demonstrated by a series of worrying economic updates.

Figures out last week showed that Britain’s economy failed to rebound by as much as had been hoped in May, when the prime minister first attempted to relax lockdown controls. The Office for Budget Responsibility killed off the idea of a rapid bounce-back, and warned that by Christmas unemployment could hit levels not seen since the 1980s.

Some 9.4 million jobs have been furloughed at 1.2 million companies under the government’s coronavirus job retention scheme. But job losses are expected to rise as the scheme is wound down from the start of August, and closed entirely by the end of October.

Less than a week earlier the government had tried to kickstart an economic revival with the announcement by chancellor Rishi Sunak of £30bn of tax and spending plans. However, as the troubling economic news poured in, and more companies announced job losses, economists and business leaders warned that the chancellor’s summer economic update could fall significantly short of requirements.

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Business leaders said that a cocktail of risks meant state support for the economy would need to remain significantly higher than normal for some time, despite the push to get people back to work. They cited the risk of a second wave of infections, continuing local restrictions in some areas, the need for physical distancing measures, and depressed consumer demand as job losses rise.

Sunak had already signalled that more needed to be done to rebuild the economy, promising further steps to boost jobs and growth in his autumn budget. However, warnings are mounting that urgent measures are needed before the nights draw in.

“The autumn budget is a long time away,” said Carys Roberts, director of the Institute for Public Policy Research thinktank. “Between now and then, we’re going to have a big wave of unemployment which could have a real knock-on for the economy, and also a risk of a second wave of infections. The summer statement was flagged as a mini-budget, but it fell a long way short of what was required.”

Here are five main priorities the chancellor still needs to address:

Protecting jobs





woman serving in a cafe, in a mask



Restaurants and bars are open, but job losses are still expected to spike. Photograph: Justin Tallis/AFP/Getty Images

In his summer statement, Sunak found up to £9.4bn with which to grant £1,000 bonuses for firms bringing back furloughed workers, as well as more funding for work coaches at Job Centres and a £2bn “kickstart” scheme to support work placements for young people. But since last week’s grim economic updates, and the announcement of more redundancies, business groups have called for more support.

The British Chambers of Commerce said a temporary cut in the rate of employer national insurance contributions, possibly before the autumn budget, would cut the cost of hiring staff.

According to research from the Institute for Employment Studies, NICs are the single largest non-wage labour cost for employers. The IES says the current system represents a tax of 13.8% on earnings above £8,788 a year, adding about £2,400 to the cost of employing someone on an average wage.

Sunak could either raise the level at which employer NICs kick in across the board, or tailor the measure to specific age groups – such as exempting under-30s to boost opportunities for young adults.

Boosting benefits

With unemployment expected to rise sharply over the coming months and the furlough scheme winding down, household finances will take a significant hit. Charities have called on the chancellor to do more to cushion the blow, and thinktanks have warned that Britain’s economic recovery will be far weaker if families have less money to spend.

The Resolution Foundation thinktank has called for an additional £10bn to be pumped into the universal credit system. The Joseph Rowntree Foundation, an anti-poverty charity, has also called for the child element of universal credit and child tax credit benefits to be increased by £20 a week.

Sunak did increase the value of universal credit and tax credits by £1,000 a year in March as the pandemic struck, but the IFS estimates that families falling out of work will get £1,600 less on average in benefits than they would have done without the decade of austerity imposed by the Conservatives. Also, the chancellor’s increase is set to last just for this year; campaigners have said it must be extended.

The IPPR’s Roberts said: “Child poverty could go up by 200,000 by the end of the year. An increase in child benefit would have a large impact on that, while also putting money in families’ pockets.”

Saving the high street





shoppers in winchester in masks



Retail footfall for June has more than halved against the same month last year. Photograph: Andrew Matthews/PA

Consumer spending has started to recover since non-essential shops were allowed to reopen last month, although sales remain significantly down. Footfall in city centres has bounced back as more shops, pubs and restaurants have reopened, but is still roughly half what it was a year ago.

Well-known high street names including John Lewis and Boots have announced thousands of job cuts between them since the chancellor’s speech.

In response, the British Retail Consortium has called on ministers to remain open to further action, saying more can be done to boost consumer demand.

The CBI, the big-hitting business lobby group, has said more grants for companies and extending relief for business rates – the tax levied on commercial premises – could be required. Sunak has promised a “fundamental review” of business rates, due in the autumn.

But something could be done sooner. Speaking after the chancellor’s summer statement earlier this month, Dame Carolyn Fairbairn, director general of the CBI, said: “With nearly 70% of firms running low on cash, and three in four reporting lack of demand, more immediate direct support for firms, from grants to further business rates relief, is still urgently needed.”

Green recovery

To meet the prime minister’s promise to “build back better” after coronavirus, Sunak could allocate more funding for green infrastructure projects, boosting job creation in the industries of the future. He earmarked £2bn to help insulate Britain’s draughty homes and £1bn for public buildings. But campaigners say it’s not enough. According to the IPPR, £30bn of annual investment is needed to meet the target of net zero carbon emissions by 2050.

Aiming to cement a greener economic recovery, the Federation of Master Builders has demanded a national retrofit strategy to help boost buildings’ energy efficiency. Manufacturers have also called for spending to stimulate the development of electric cars – including charging infrastructure.

Sunak could look at plans already announced by other countries. Italy is planning a €1bn (£910m) car scrappage scheme, while Germany is offering a €3,000 subsidy for new electric cars, and has promised a €50bn package of funding for research into new low-carbon vehicle technologies.

Tax increases

Government borrowing is on track to balloon to £322bn this year according to the OBR, and could near £400bn if the economic recovery is even slower than anticipated. Economists argue that borrowing costs are at the lowest levels on record, enabling deficit-fuelled spending to cement a recovery.

Sunak has however indicated that “tough choices” will have to be made at the autumn budget to get the public finances back on to a sustainable footing. The OBR estimates that this will require an additional £64bn a year from tax rises or a return to austerity.

Last week the Treasury launched a review of capital gains tax, which brings the exchequer billions each year from the sale of second homes, works of art and shares. Observers said this could pave the way for tax rises to claw back the costs of recovery from wealthy households in the autumn budget.



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