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Economic Outlook and Furlough Scheme Changes

Volume 803: debated on Thursday 18 June 2020

Commons Urgent Question

The following Answer to an Urgent Question was given on Tuesday 16 June in the House of Commons.

“Before I start, may I join with all the words that have been said in praise of Jo Cox during the proceedings so far? I know that many more such words will be said today. One thing that colleagues may not know, amid all the many things that they have been told about her, is that she was very fond of visiting Symonds Yat in my constituency in Herefordshire. I look forward to the day when many other people can do that, following lockdown.

From the onset of this pandemic, the Government’s top priority has been to protect the NHS and to save lives, but we have also made it clear that we will do whatever is needed to support people, jobs and businesses through the present period of disruption, and that is what we have done. On Friday, the Office for National Statistics published its first estimate of April GDP and showed the economy contracting sharply by a record 20.4% on the month. It is clear that restrictions introduced during the lockdown, while necessary, have had a severe impact on output.

However, it is important to note that the OECD, the Office for Budget Responsibility and other external forecasters have all highlighted that the cost to the economy would have been significantly higher were it not for the swift and decisive action that the Government have taken. Measures such as the Coronavirus Job Retention Scheme—the CJRS—which has protected almost 9 million jobs and more than 1 million businesses, have helped to limit the adverse impact of the crisis. It is also important to note that the OECD forecast the UK to have the strongest recovery of all the large countries that it looked at, with an unemployment rate projected to be lower than that in France and Italy by the end of 2021.

As we are reopening the economy, the Government are supporting putting people back into work. Last month, my right honourable friend the Chancellor announced that the CJRS would be extended for four months, until the end of October. From July to October, employers currently using the scheme will be able to bring furloughed employees back part-time. That will ensure that the CJRS will continue to support all firms so that no employer faces a cliff edge.

This remains a very uncertain and worrying time for businesses and employees alike. The Government have set out separately the five principles that must be satisfied before we make further changes to the lockdown rules, which we based on advice received from the Scientific Advisory Group for Emergencies. However, I can assure the House that the thoughts, energies and resources of the Government are focused increasingly on planning for the recovery. We will develop new measures to grow our economy, to back businesses and to boost skills. I am confident that the United Kingdom can continue to thrive in a post-Covid world.”

My Lords, as well as the UK recording the highest excess death rate from Covid-19 of any country, it is now forecast by the OECD to suffer the worst recession in the G7, with a projected fall in GDP of 11.5% this year. Why is the UK likely to experience over this year the worst economic impact from the coronavirus crisis of all industrialised countries?

My Lords, the noble Lord is correct that we have a severe outlook for this year, but that OECD report also forecasts us to have one of the strongest recoveries of the large countries it looked at. If two years are put together, we emerge close to the top of the table.

The noble Lord asked for some of the reasons why we will be particularly badly affected. I can point to two: one is the services nature of our economy, which has been particularly affected by the lockdown; the second is the relative openness of our economy, which means that we are more affected by changes in global demand.

My Lords, numerous whistleblowers are now reporting that quite a number of SMEs are struggling to get people back to work safely. Will the Minister support proposals by my colleague Ed Davey MP and some significant business names to scale up the Health and Safety Executive so that, free of charge, it can assist SMEs with risk planning and mitigation, and will the Government fund the HSE quickly to recruit retired professionals to meet the urgent need?

My Lords, the Government are providing more support to businesses to reopen safely. A specific fund is available for getting high streets open safely. We are also putting additional funding into the Health and Safety Executive to ensure that any enforcement action necessary can be taken.

The furlough system is delaying rather than solving the epidemic of unemployment about to hit us, particularly among our young. A prime cause of this disastrous loss of jobs is the two-metre rule, which is increasingly ignored by many and in any event is based on science that is widely questioned. May I beg the Government to take their courage in their hands, balance one risk against another, scrap the two-metre rule and in its place issue guidelines that rely primarily on the great common sense that the vast majority of people always show?

My noble friend will be aware that the PM has commissioned a comprehensive review of the two-metre guidance. It will take advice from a range of experts, including the CMO, the CSA, behavioural scientists and economists. That work will be completed in the coming weeks.

My Lords, a YouGov survey this week showed that more than half of UK businesses will lay off more than a quarter of their staff within three months of the end of the furlough scheme. That scheme was bold and necessary, and I applaud the Chancellor for it, but it is vital that it is an employment subsidy scheme and not an unemployment benefit scheme. Can the Minister commit to making further wage support for employers, especially large firms, conditional on their providing commitments to retain their workers and/or to invest in their retraining in the months ahead?

The noble Lord is right that the design of the scheme is about keeping a connection between an employee and an employer during lockdown so that they can return to that job afterwards. That is why we have set out a careful process for unwinding the scheme so that, from August, employers will need to begin to contribute costs, scaling up from national insurance and pension contributions to 10% and then 20% of the wages covered.

The Government’s investment in the furlough scheme has benefited millions across the country. Does the Minister agree that the way to ensure that we get maximum benefit from that investment is to reduce the two-metre rule to one metre, to stop the ridiculous quarantine rule currently in place, and urgently to consider establishing a sovereign wealth fund to invest in businesses that need it, with the Government taking a share, which would benefit both government finances and the long-term security of those businesses?

The noble Lord will be aware of my previous answer on the two-metre rule. In our road map for reopening the economy, we have been able to take important steps forward—for example, the reopening of non-essential retail this Monday. We encourage people across the country to be aware that, when we take such steps to reopen, it is then safe to go out and support their local high street and their local economy.

Building on what my noble friend the Minister just said, does she concur with the view that we have now reached the stage—admittedly, slowly and fitfully—for normal economic life to restart? Does she agree that we should be wary of extending special schemes such as furlough for too long because of their huge cost and the inevitable disincentive and perverse effects?

My noble friend is right that there is a balance to be struck with such schemes. The pathway that we have set out for the gradual contribution of businesses to the costs of furloughed employees, and the ability to bring them back to work flexibly and for as many hours as they need, strikes the right balance in that scheme.

I suggest that one of the big issues today is not simply removing the homeless from the streets—as this Government valiantly did, and we should back them for that—but preventing homelessness. That is the real big issue. I call on the Government to have a moratorium on evictions, provide work through jobs training and invest in businesses to keep people in work. Importantly, if people slip into the treacle of homelessness, they will be there for decades, children will be hurt and there will be a knock-on effect on the NHS and the well-being of our whole society. We have to concentrate on preventing people falling into homelessness.

I completely agree with the noble Lord that we need to take preventive action on homelessness as well as dealing with the problem where it arises. The Government have put in place a three-month moratorium on evictions, which can be extended. We have also increased the generosity of the local housing allowance to help those who are renting but may have lost their job or income due to coronavirus. A couple of noble Lords have now raised the question of investing in businesses; most of our support is of course given through loans to businesses, but the Future Fund makes equity investments in early start-ups that have been unable to access other finance.

My Lords, I congratulate the Government on their speedy furlough scheme, protecting the jobs of people who were at risk from this sudden economic shock. But does my noble friend agree that, given the likelihood of huge numbers on furlough ending up being made redundant, it is enormously important to beef up apprenticeships and training opportunities across the country as we try to recover from this pandemic?

I absolutely agree with my noble friend about the importance of apprenticeships and other schemes that will help people who have unfortunately lost their jobs during this pandemic to re-enter the labour market and recover as our economy opens up.

Academic research from New Orleans after its flooding disaster shows that entrepreneurs were the key to regenerating a very damaged economy. What support are the Government giving now to incentivise entrepreneurs to take risks and employ people so that new ideas, new products and new services can re-boost our economy?

One important change that the Government committed to in their manifesto and have implemented is increasing the employment allowance in national insurance contributions. This means that new businesses can employ more people without paying those national insurance costs, and it incentivises them to take on their first one or two members of staff as they grow their businesses.

Sitting suspended.