One in four companies say they will be not be able to pay a fifth or more of full-time workers’ salaries between August and October and would have to lay off employees, a poll has found.
Research by the Institute of Directors revealed today shows that firms are worried about being able to keep staff on if they are forced to contribute to 20 per cent of wage bills and pay National Insurance contributions.
The Institute has urged Chancellor Rishi Sunak to make the scheme as flexible as possible to save jobs – as is the intent of the furlough scheme.
Jonathan Geldart, of the Institute, said: ‘Business leaders know that the Government’s support can’t be infinite, but the ugly truth is that if there’s no money coming in the door, many firms will be forced to make difficult decisions come August.’
The number of jobs being bailed out by the government during lockdown has hit a new high of 8.4million – plus 2.3million self-employed.
The Institute of Directors has urged Chancellor Rishi Sunak to make the furlough scheme as flexible as possible to save jobs amid fears thousands of employees could be laid off when firms are told to contribute towards salaries
Critics are concerned the scheme is being used by some firms as a ‘waiting room’ for unemployment, with many furloughed workers set to be axed.
A string of major companies, including British Airways, Virgin Atlantic and Rolls Royce have announced brutal job cuts, just weeks after furloughing staff.
Yesterday, as Prime Minister Boris Johnson gave evidence to senior MPs on the coronavirus crisis, the transport committee’s chairman Huw Merriman asked him: ‘Why is this furlough scheme is called the Job Retention Scheme when companies like BA can put their employees on furlough and then put them under threat of redundancy at the same time?’
Mr Johnson replied: ‘I won’t go into individual companies, but I am concerned about the way some companies are treating their workforce.
‘People should not be using furlough cynically to keep people on their books and then get rid of them. We want people back in jobs.’
New figures showed another 400,000 have been furloughed over the past week, with a million employers now putting in for a total of £15billion
Almost half of the workers in the UK are now on the Government’s payroll, with the total bill for subsidising millions of jobs in the private sector increasing by £650million every day.
Official figures published yesterday revealed the mounting cost of ministers’ efforts to prevent mass unemployment.
Yesterday the Prime Minister warned companies against using the furlough scheme ‘cynically’ to keep staff on their books before axing them.
Worst is over, says Bank
The economic chaos caused by the pandemic may be bottoming out, says the Bank of England.
Andy Haldane, chief economist at the central bank, said there were signs of ‘stabilisation and a very modest recovery’.
But he added the first half of the year was ‘ugly’ and it would be some time before the economy returns to its former strength.
It follows the Bank’s publication of a ‘scenario’ earlier this month, in which it warned the economy could shrink 14 per cent in the worst annual slump since 1706.
Mr Haldane said: ‘If we’ve found our floor, and perhaps even nudged up from that floor, that’s a cause for a little bit of cautious optimism.’
The official figures show almost 11million private sector workers – around four in ten of the total – are now receiving taxpayer support from either the Job Retention Scheme or the Self Employment Income Support Scheme at a cost of almost £22billion so far.
Over the last week, another 700,000 employees and self-employed workers have been signed up for these state subsidies, adding £4.6billion to the bill.
The latest surge in claims means there are now more than 16million people in total on the Government’s payroll, including 5.4million public workers.
This is almost half the 33million people currently employed in the UK, according to Office for National Statistics.
There are growing concerns about the costs to taxpayers and what happens when Government support is withdrawn.
Chancellor Rishi Sunak is expected to announce reforms this week to keep a lid on rising costs, and ensure employers foot more of the bill.
He is expected to bar companies from furloughing more staff from August.
He is also preparing to reveal how much employers will have to start paying towards the wages of furloughed staff.
Currently they receive 80 per cent of their wages up to a maximum of £2,500 per month from the state, and the employer can top this up if they choose.
Jonathan Geldart, of the Institute of Directors, warned that many firms will be ‘forced to make difficult decisions come August’
Under draft plans they would have to start paying a fifth of wages from August 1, meaning the Government contribution would fall to 60 per cent.
At the Liaison Committee yesterday, Mr Johnson suggested he would bring a coronavirus economic recovery package before Parliament before the Commons rises on July 21.
The PM vowed not to increase income tax, VAT or national insurance despite coronavirus wreaking havoc on the public finances.
He also promised that the triple lock on state pensions – which means they rise by the highest of inflation, earnings, or 2.5 per cent – would be maintained.
Standing by the pledges, Mr Johnson told senior MPs: ‘We are going to meet all of our manifesto commitments.’
He told the cross-party committee his desire was to ‘keep taxes as low as we possibly can consistent with our desire to invest in our fantastic public services’.
How WILL we ever pay for it all? Our City Editor – who has reported on every economic crisis since the 1970s – analyses the stark decisions faced by the Chancellor
ByAlex Brummer for the Daily Mail
The scale of Britain’s borrowing and debt binge caused by the Covid-19 lockdown has never been greater. Last month borrowing rocketed to £62.1billion.
That number should start to ease down as people return to work and the nation’s shops open. Nevertheless, Britain, like much of the advanced world, is staring at a deficit and debt abyss this year.
Borrowing is projected by the authoritative Institute for Fiscal Studies (IFS) to hit 15 per cent of total national output, which is more than at the time of the financial crisis, and the greatest level since the Second World War – although that is below the wartime peak.
In the short period from April 1 to May 19 the Debt Management Office issued a staggering £90.2bn of gilt-edged stock to help finance Chancellor of the Exchequer Rishi Sunak schemes
Britain’s outstanding debt is already at nearly 100 per cent of national income and the Office for Budget Responsibility (OBR) reckons it is heading for around 110 per cent, undoing much of the good work of more than a decade of budgetary restraint.
In the short period from April 1 to May 19 the Debt Management Office (DMO) issued a staggering £90.2billion of gilt-edged stock – Government bonds, or IOUs – to help finance Chancellor of the Exchequer Rishi Sunak’s vastly expensive jobs furlough scheme, and to compensate for the loss of tax revenues.
That represents 41 per centof the £220billion that the DMO, an outpost of the Treasury, intends to issue between April and July.
In case the DMO fails to haul in cash from gilt sales quickly enough to pay the bills, the Treasury has asked the Bank of England for an uncapped overdraft facility.
A good appetite for gilts from the Bank, UK domestic investors and overseas means the Treasury has not needed to use the overdraft so far.
But the truth is that a fiscally responsible government cannot allow borrowing and debt to balloon uncontrolled.
Britain’s debt mountain
- £62.7bn Borrowing last year
- £54.8bn Borrowing forecast in March Budget for this year
- £298.4bn Latest official forecast for borrowing this year
- £62.1bn Borrowing last month
- 42% Fall in tax receipts last month
- 52% Rise in government spending last month
- 97.7% – Debt as percentage of GDP
- £1,888,000,000,000 Current national debt
- £2,262,000,000,000 Debt forecast for end of 2020
- £62.1bn Borrowing last month
- 42% Fall in tax receipts last month
- 52% Rise in government spending last month
So the big, still-unanswered question is: how will this ever be paid for if future generations are not to inherit an enormous burden?
The monitors at the IFS already have suggested that tax rises are inevitable. But the Tory manifesto for the December 2019 election (remember that?) ruled out any increase in the current Parliament to three of the big tax groups – income tax, national insurance and VAT.
Moreover, if we accept the view of the International Monetary Fund, the Bank of England and the OBR that we are heading into a slump of Great Depression proportions, then hammering the economy with increased taxes on incomes and spending would be economic suicide.
The only feasible tax rises are those on wealth, including housing, fuel (which could be disguised as a green levy) and, possibly, a temporary/emergency surcharge on National Insurance to fund the NHS. This was a device used by Gordon Brown when he served as Chancellor.
Tax relief on pension funds might also be vulnerable. But all of these would be deeply unpopular and it would take great bravery to introduce big tax rises at the present juncture.
Public support for austerity is extremely weak after more than a decade of taxpayer sacrifices since the financial crisis.
The Government already is committed to improving funding for the NHS and to deal with financing for social care in the wake of the vast loss of life in the hard-pressed care home sector.
In addition, it is backing a big infrastructure roll-out, from the high-speed rail link from London to the North (HS2), to better roads, bus services and bicycle lanes.
Higher unemployment levels will also place the Government under pressure to strengthen universal credit and other benefits on a more permanent basis.
Further haircuts on wages and pensions in the public sector look difficult to force through after the role it has played in navigating through coronavirus. The options are extraordinarily narrow.
Britain’s outstanding debt is already at nearly 100 per cent of national income and the Office for Budget Responsibility reckons it is heading for around 110 per cent
Living with Higher Debt
Britain may be able to sustain higher borrowing and debt levels over the short to medium term (one to five years) provided there is a belief among investors, domestic and global, that there are rules designed to bring down the burden in the long term.
The UK is in the good position of never having defaulted, which means that it enjoys good credit ratings. In contrast, Argentina (with a population of 45m) has defaulted on its debt 11 times in the last century.
It is possible to live with a high level of indebtedness for quite a long time. Japan, since the 1990s, has been able to sustain high debt levels of more than twice national output.
This is because of the willingness of its citizens, institutions and the central bank to buy Japanese government bonds in vast quantities in preference to other savings.
The hope would be that, by not adopting draconian tax rises and public spending cuts, the UK economy could grow sufficiently fast to start shrinking the scale of borrowing and debt as a proportion of GDP.
Such a policy might be tolerable if UK interest rates remain low and if overseas investors – the kindness of strangers – are willing to buy sterling assets.
In the recent past, Norway’s sovereign wealth funds and Middle East potentates have shown themselves willing to put their trust in Her Majesty’s Government.
Wiping out Debt Mountain
New Bank Governor Andrew Bailey raised the volume of QE by £200bn in his first week
Quantitative easing (QE), which occurs when the Bank of England buys Government debt, means that gilt-edged stock can be issued in the knowledge that some of it will be parked on the central bank’s balance sheet.
New Bank Governor Andrew Bailey raised the volume of QE by £200billion in his first week, to help cope with tensions in the financial markets, bringing the UK total to £645billion.
The suggestion is that it could seek authority for a further £100billion of purchases next month.
The concern is that such steps could stir up future inflation. But analysts say this is different to the causes of hyper-inflation in Zimbabwe, Venezuela and Weimar Republic Germany.
In Britain, the Bank of England is independent of the Government in setting monetary policy, the amount of credit in the financial system.
The Bank buys gilts in what is called the ‘secondary market’ from banks and insurers, along with specialist gilts brokers.
So, instead of creating or printing money, the Bank is buying up existing debt at commercial prices.
The declared goal is to sell gilts back into the market when conditions are right, or hold them until maturity.
The big danger occurs if a central bank is required to buy the bonds directly from the Government, which amounts to turning on the printing presses.
The Bank’s independence and a strict inflation target mean that QE is on a tight rein.
Data shows that the Bank of England’s holdings of gilts are at 34 per cent of GDP.
That is substantial, but it compares with 49 per cent for the European Central Bank, 38 per cent for the Federal Reserve in the US and 115 per cent for the Bank of Japan, so should be sustainable.
Britain’s outstanding debt is already at nearly 100% of national income and the Office for Budget Responsibility reckons it is heading for around 110%
The UK is not known for making extravagant policy decisions. My belief is that it will adopt a combination of policies to cope with higher borrowing and debt.
The Treasury will outline less stringent fiscal rules, which allow the Chancellor more headroom on borrowing and debt, with a clear path to gentle reductions over this Parliament and the next.
The Bank of England will act as necessary, both to support credit conditions and growth, and to ensure any excess supply of gilts is mopped up.
Should underlying inflation move beyond the 2 per cent target, the Bank of England will disgorge some of its gilts positions, mopping up excess liquidity.
All of this could be blown off course if the UK economy performs extremely badly, provoking a full-blown sterling crisis and a retreat from UK assets.
That is why the markets require the assurance of clear borrowing and debt reduction targets.