I am seeing the first signs of awareness that we really are heading for an economic disaster in this country. Larry Elliott wrote about it in the Guardian a week ago. Gordon Brown has picked up the theme. It's front-page news in the Guardian. The suggestion made in the last article, based on House of Commons Library research, is that unemployment in the UK might increase to 3.8 million people as the furlough scheme ends.
I really wish I could be so optimistic. I am not. Nor, I know, is Danny Blanchflower. Let's get some facts.
There are more than 920,000 businesses that have had government ‘bounce back' loans to survive the coronavirus downturn.
There are 9.2 million people furloughed.
It is very hard to predict how many businesses will fail as a result of coronavirus. It is easy to find a range of estimates, many of which suggest that around a third of the money advanced by the government will never be repaid.
And it is a fact that many of the businesses most likely to fail are significant employers of people in what is described as low productivity work e.g. retailing, hospitality, etc. In other words, job losses could be significantly higher in proportion to total employment than is the total downturn in proportion to pre-Covid GDP.
Also note that the loans noted do not cover most of the self-employed - the vast majority of whom have no employees. There are, according to ONS data, around 5.7 million self-employed people in the UK.
Using just this data - and I think that fair - it is not hard to imagine three things.
The first is that if it is expected that one in three businesses will face challenges, and then fail to repay their small business loans then it is likely that many more still will struggle to succeed in doing so. If one third will fail another one third will struggle. It is, then, likely that all these companies will lay off staff.
The median number of furloughed staff per employer is not 10 as a simple extrapolation of the data would employ: there are large employers who have furloughed staff, of course. But we already know many of them are beginning redundancy programmes: from hospitality, to retailing, to airlines, airports and engineering the news from large employers is not good. In that case to assume that the redundancies will only be in smaller businesses is wrong and to associate the number of companies claiming support with the number of staff furloughed may be fair, as a broad approximation. It's also fair to note that once one person contracting operations and sole traders are taken into account then 920,000 may represent most trading companies, by number in the UK (1.5 million companies supposedly trade, but hundreds of thousands will be contracting entities to which support was denied); another 700,000 or so self-employed may be VAT registered as well, but the number of employees involved will be smaller.
So let's take 10 people per employer, on average.
And then say one third will fail and one third will struggle and will also make staff redundant. That could, then, be approximately 4.5 million people who will not return to work sometime fairly soon, because most employers will already appreciate the difficulties that they are in.
Then let's extend this to the 5.7 million self-employed, of whom 4.2 million have no other employment. Assume one-third of those solely in self-employment effectively cease as well. That is another 1.4 million unemployed.
Put that on top of 2.8 million already potentially claiming and that comes to 8.7 million.
However, some already claiming universal credit will be amongst those now being made redundant because universal credit can be claimed by those in employment; indeed, most is. So allow at least a 70% current claimant overlap and remove almost 2 million from the previously suggested total for that reason. It is then possible that 6.7 may become unemployed.
Now I seriously hope I am wrong. And of course, some of my estimations are based on simplified extractions - but better that then spuriously complicated extrapolations where the assumptions are not made clear, in my opinion. You can now vary this data to suit your own view at will, of which by far the most important is the business failure rate.
But suppose you halve that business failure rate you still come up with 2.25 million additional people unemployed and maybe 0.7 million self-employed, and you would need to reduce the UC double count in that case - albeit not by 50%, maybe, but that still gives more than 2 million additional unemployed, bringing the total to around 5 million - and candidly, I think only a one sixth business failure rate is at present very optimistic.
However I look at it, a range for unemployment from 5 to 7 million seems likely. And 3.8 million seems wildly optimistic.
But whatever is the real figure, a plan is needed. And no one, from the government to Labour to the TUC is coming up with anything near big enough to handle the crisis that is coming.
And that's the most worrying bit.
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When Thatcher transformed the UK economy Tony Benn remarked “you can’t base an economy on holding doors open for one another.”
A services economy seems fundamentally vulnerable. We all need everyone else to be prosperous in order for ourselves to be prosperous.
If you’re right, Richard, and I see no flaw in your reasoning, then an effect of all those people becoming unemployed is a downward spiral because the rest of us need them to be employed to keep our operations viable.
Just hope the government can stem it with enough Keynesianism (if they choose to do that rather than austerity).
[…] Cross-posted from Tax Research UK […]
A plan is certainly needed. That plan can only be two-pronged.
First, as the Bournemouth beach invasion showed, getting the message over that Covid-19 is highly contagious and if containment recommendations such as social-distancing and the wearing of face masks aren’t followed this will delay recovering the economy.
Secondly, pursuing economic recovery will require a very high level of inventiveness including a willingness to think outside the box. The latter means examining in an open-minded way how the country creates its medium of exchange since the use of such a medium signals demand. Arbitrarily blocking the flow of this signalling for reasons of dogma has to be set aside if only on an experimental basis.
We are in an economic war where needs must!
These are scary statistics and show just how criminal and wasteful it was from an economic perspective not to have diverted sufficient resources to actually dealing with the pandemic and ensuring that the correct public health conditions were in place to allow for opening.
My biggest worry is that the Government will create almost perfect conditions for Dangerous Disorder in our communities. The unemployment issue will be the icing on the cake for the social disunity they have been creating since 2010 with their divisive and populist massaging of public opinion.
Rampant unemployment might be the match and accelerant to make things worse.
Out here in Derbyshire, the police have never been so prominent. There have been fights and brawls reported throughout the Peak District anywhere where there is inland water and people have gathered in the recent hot weather.
I’d say the country is looking salty. This is going to be THE test of Government competence and I’m not feeling positive about it.
I see a Government that is only capable of destroying – not maintaining or supporting. It is a dangerous mono-culture.
I share all your fears
And people are losing all sense of rationality
It would appear Boris Johnston has become a Keynesian convert if you can believe anything he says:-
https://www.theguardian.com/politics/2020/jun/28/boris-johnson-to-launch-spending-drive-to-build-uk-back-to-health
I especially liked the bit:-
“The home secretary, Priti Patel, said the prime minister’s investment plan would provide money for broadband connections ….”
Now where did I hear that before?
Can’t wait for the Tories to use MMT to provide a massive tax break for the super-rich as Trump did!
A memory stirs, of reading an article in the New Statesman, sometime in the late 1990s, that told how much of the Labour manifesto for the 1983 election had eventually been implemented. Gerald Kaufman had dubbed it “The longest suicide note in history”, but as we know, history is a much contested subject. I do remember noting at the time that the article was written by a historian who taught in a private school.
I have no doubt that, following in the path of greater and deeper broadband access, other gems of Labour’s 2017 and 2019 manifestos will find future purchase as current “ruling ideas” run out of road, and deservedly so.
Perhaps I could just briefly follow the Gerald Kaufman line by adding that had Labour won office, the Fiscal Credibility Rule would definitely have been a route to self-inflicted political fatality !!
Your last: indeed
It’s a 100% certainty he will implement Rahm Emanuel’s ‘never let a crisis go to waste’ advice. Over the course of the next week or so there will be a series of bullish ‘renewal’ policies, wrapped in the Union Jack, that will engender a lot of public approval. When starting from a sub-zero base anything above the line looks good. Johnson, Gove, Cummings et al. are a wily bunch not to be underestimated when it comes to successfully ‘manufacturing consent’. And in Sunak they have an ideal front man. Johnson, is already spinning terms like ‘opportunity guarantee’ and ‘shovel-ready’. Have no doubt that the rhetoric will be very well written and delivered. Classic Dom!
I just look forward to the Mail headline: ‘How are you going to pay for it?’ and their response, since Johnson has now definitively ruled out any return to ‘Austerity’. Once ‘Boris’s Billions for Britain’ have been officially detailed what will be the messaging from the Treasury and the BofE? Maybe Rishi has read Stephanie Kelton’s book and has been converted. That would change the political landscape, wouldn’t it, raising that philosophical chestnut of ‘bad guys doing good things’. Besides, nicking your opponent’s weaponry is always a smart move.
If he wants to win over ‘middle England’ Starmer will now need to up his game significantly and I’m not yet convinced he’s up to it. What can he offer that Johnson can’t or won’t? And he really does need to cheer up a bit. Once the C-19 crisis has abated, the public will understandably want to have a bit of fun – which is Johnson’s forte. His (and our) best hope is that over the next 4 years the Tories manage their new ‘road to recovery’ plan with the same world-beating efficiency they’ve employed to deal with the pandemic. And, as in the past, they can be felled by the eye-watering corruption that lies forever at the heart of the party.
To say we live in ‘interesting times’ has become an understated cliché.
Sadly your estimate is only a slightly pessimistic view, it is in the entirely credible range. We must be very likely to see two thirds of that number unemployed.
The government face two big problems. First, they need to take action to stimulate economic activity to substitute for a lot of those lost jobs (and then hope a multiplier effect helps with the rest); unfortunately that needs to be taking effect as soon as September and there is no sign of other than sketchy ideas. Second, recent events show people’s compliance with Covid precautions is falling as people lose any confidence in the government’s competence; to be honest they have been remarkably tolerant so far in accepting all the government missteps as bad luck and nevertheless following the guidance.
It is of course conceivable that they will now come up with a plan that both replaces lost economic activity quickly and creates a believable light at the end of the tunnel to rebuild missing confidence. But who can be optimistic after the non-compliant Turkish PPE, the “game-changing” antibody test that didn’t work, the “world-beating” tracing app that failed ….? More likely too little too late, as usual.
Definitely, I am afraid
Starmer was cautious on Radio 4 this morning, but I think he is connecting with people by talking quite simply. It was put to him that Govt was going to go ‘infrastructure, infrastructure, infrastructure’ and he responded with ‘jobs, jobs, jobs’
I hope he gets to read The Deficit Myth sometime very soon – anyone on here have any way of making contact with him?
I have limited contact with the Shadow team, but not Keir