The government will “directly support” up-to 60% of the wages of people in “viable” jobs. While this is significantly less generous than the existing furlough scheme, it is also less expensive to operate. The jobs support scheme will cost £1.2bn compared with £39bn spent so far on the furlough scheme. Starting in November, it will run for 6 months.
A “pay as you grow” scheme will also allow companies more time to repay bounce back loans. The payback period is extended to up to 10 years, rather than the initial six. Those struggling to pay them back will now be able to choose to make interest-only repayments and “anyone in real trouble” can suspend repayments altogether for up to six months.
So much has changed in the last 6 months that a completely viable 12 months ago may not appear viable right now. Demand is down, demand is changing, and the virus has accelerated already existing trends, as with the move to online shopping. But market forces could soon change when there was a vaccine, especially for the travel, entertainment, and leisure industry; they could bounce back.
The question is: what’s a ‘viable job’ and who gets to decide?
Some industries and jobs will be viable in the future but they can’t open now as a direct result of the governments’ measures. Are jobs in aviation viable? Let’s assume they are. What about their suppliers and supply chains, how does the chancellor determine viability there?
Business owners will be expected to subsidise a greater portion of the scheme that furlough. But with the scheme only available to those working 1/3 of their hours, it may lock out industries that haven’t been able to fully reopen – even if this isn’t their fault. Entertainment venues, conference centres, and exhibition spaces for example. They will be unable to give most workers 1/3 of their hours while they’re still shut or limited by social distancing and the rule of six. But once there is an end to social distancing or rule of 6, that could change.
Additionally, a lot of companies are already offering staff reduced hours. And this cost could go up under the new scheme given the employer would have to top up unworked hours, albeit with help from the government.
“I can’t save every job” – Rishi Sunak
Lockdown has meant that low-income workers –particularly in the gig economy – have had their incomes more affected by the crisis than many of the more comfortably off, at least so far.
As a result of this, and the rising cost of “essentials”, those on lower-income are being driven to seek out lower-cost value-driven options. While many of those on higher incomes have been able to continue work through the crisis, and have seen rising fortunes from not having to commute, eat out etc. They have greater spending power for more expensive retail at the other end of the spectrum.
Data from the Office of National Statistics on retail sales up to August shows the resulting bifurcation effect. Companies are showing revenue, earnings, and online growth at both ends of the spectrum but a decline in the middle sector. The undifferentiated and boring middle – the so-called unremarkable retail in the middle – is what is struggling, and this is an extension of an existing trend.
So much has changed in the last 6 months that what was a completely viable job 12 months ago may not appear viable today. However, just like they have in 6 months, market forces could change things again. When there was a vaccine for example, especially for the travel industry, arts, and live concert venues. They could bounce back with a bang.
Of course zombie companies – that is those only propped up by cheap money – are bad for productivity. We’ve seen this since the financial crisis. But we won’t know what the new normal looks like for a long time.
The economy faces a hit of £250 million a day if new partial lockdown measures reverse the increases in things like people going to pubs and restaurants and returning to work. According to The Centre for Economics and Business Research (CEBR), GDP could fall by between 3 per cent and 5 per cent in the last three months of the year compared with the third quarter. London alone could face costs of more than £2bn and many Companies have already reversed their recent return-to-work moves for staff. Weekly restaurant takings will be down by up to 50% during while the curfew remains in place, costing of approximately £3.8 billion between now and the end of March 2021.
Commercial office space has been particularly hard-hit by the virus and lockdown rules. While 73% of companies believe that COVID-19 will result in downsizing to smaller office spaces en-masse, only 37% of are actively planning to relocate to a smaller commercial space themselves. This shift may be more gradual than many assume, helped a by more equitable new arrangements between owners and occupier for leasing retail, office, and industrial space. This could including things like turn-over rent – with rent connected with how much is being spent on-premises.
It seems the UK Government’s plan is to reduce the spread of the virus is by reducing contact – since that’s what spreads the virus – without negatively impacting the economy. Through this lens, some of the measures, such as the rule of 6 and 10 pm curfew, make more sense.Watch video
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