Economy Update

Statement

The following Statement was made in the House of Commons on Thursday 5 November.

“On Monday, the Prime Minister set out the action we need to take between now and the start of December to control the spread of coronavirus. In response, we are providing significant extra support to protect jobs and livelihoods in every region and nation of the United Kingdom: an extension to the coronavirus job retention scheme; more generous support to the self-employed and paying that support more quickly; cash grants of up to £3,000 per month for businesses that are closed, worth over £1 billion every month; £1.6 billion for English councils to support their local economy and local healthcare response; longer to apply for our loan schemes and the future fund; the chance to top up bounce-back loans; and an extension to mortgage payment holidays. That is all on top of more than £200 billion of fiscal support since March.

This Statement follows the Bank of England’s monetary policy decisions earlier today, meaning all economic and monetary institutions are playing their part. As the House would expect, the Governor and I are in constant communication as the situation evolves. Our responses are carefully designed to complement each other and provide certainty and support to people and businesses across the UK. The Bank’s forecast this morning shows that economic activity is supported by our substantial fiscal and monetary policy action. Just last week, the International Monetary Fund described the UK’s economic plan as ‘aggressive’, ‘unprecedented’, successful in ‘holding down unemployment’ and business failures, and

‘one of the best examples of coordinated action globally’.

Our highest priority remains the same: to protect jobs and livelihoods. That is why we have already decided to extend the job retention scheme to December. But people and businesses will want to know what comes next, how long we plan to keep the scheme open, and on what terms. They want certainty. The Government’s intention is for the new health restrictions to remain only until the start of December, but, as we saw from the first lockdown, the economic effects are much longer lasting for businesses and areas than the duration of any restrictions. As the Bank of England has said this morning, the economic recovery has slowed and the economic risks are ‘skewed to the downside’.

Given this significant uncertainty, a worsening economic backdrop and the need to give people and businesses security through the winter, I believe it is right to go further, so we can announce today that the furlough scheme will not be extended for one month; it will be extended until the end of March. The Government will continue to help to pay people’s wages up to 80% of the normal amount; all that employers will have to pay for hours not worked is the cost of employer national insurance contributions and pension contributions. We will review the policy in January to decide whether economic circumstances are improving enough to ask employers to contribute more.

Of course, as the furlough itself is now being extended to the end of March, the original purpose of the job retention bonus to incentivise employers to keep people in work until the end of January obviously falls away. Instead, we will redeploy a retention incentive at the appropriate time. For self-employed people, I can confirm that the next income support grant, which covers the period November to January, will now increase to 80% of average profits, up to £7,500.

I also want to reassure the people of Scotland, Wales and Northern Ireland. The furlough scheme was designed and delivered by the Government of the United Kingdom, on behalf of all the people of the United Kingdom, wherever they live. That has been the case since March, it is the case now and it will remain the case until next March. It is a demonstration of the strength of the union and an undeniable truth of this crisis that we have been able to provide this level of economic support only because we are a United Kingdom. I can announce today that the up-front guaranteed funding for the devolved Administrations is increasing from £14 billion to £16 billion. This Treasury is, has been and will always be the Treasury for the whole of the United Kingdom.

I know that people watching at home will have been frustrated by the changes that the Government have brought in during the past few weeks. I have had to make rapid adjustments to our economic plans as the spread of the virus has accelerated. I would like to take this opportunity to explain how and why this has happened. During the summer, as we began slowly unlocking, it was our hope that the country would continue to be economically open, albeit with local restrictions being put in place as and when needed. We knew that there would likely be a resurgence in the spread of the virus, but with increased NHS capacity and test and trace, our belief was that we would be able to stay ahead of the virus. On that basis, we designed an economic approach that continued to provide wage support to people, incentivised businesses to retain staff beyond the end of the furlough scheme, and created new job-creation and training schemes such as Kickstart, all built to support an economy that was broadly open but operating with restrictions and overall lower demand. At the time, this approach was not Government acting alone. Our proposals secured wide-ranging support, from the TUC to the CBI. It was their hope, as it was ours, that the public health situation would allow us to keep businesses and workplaces open.

The virus, however, continued to spread. Localised restrictions were having an impact, so we intensified this approach and added further areas. As these restrictions intensified, the economic impact, particularly on industries such as the hospitality sector, was significant, so in response we altered our approach to wage support, making it much more generous to employers and in turn protecting jobs. We also introduced a range of grants to businesses, whether open or closed, to help them meet their fixed costs, and additional funding for local authorities to respond to specific local economic challenges.

But again, the virus continued to spread, but more quickly, and so we arrived at last week, when the Government’s scientific and medical advisers presented data which showed that R was greater than 1 in all parts of the country, that the NHS was at risk of being overwhelmed in a matter of weeks and the likely resultant loss of life that would accompany such an event. The only viable solution left to protect our NHS was the reimposition of temporary significant enhanced restrictions in England, in addition to those in Wales, Northern Ireland and Scotland. So, given these changed public health restrictions and the economic trauma they would cause in job losses and business closures, I felt it best to extend the furlough scheme rather than transition at that precise moment to the new Job Support Scheme.

Political opponents have chosen to attack the Government for trying to keep the economy functioning and to make sure the support we provide encourages people to keep working. They will now no doubt criticise the Government on the basis that we have had to change our approach, but to anyone in the real world that is just the thing you have to do when the circumstances change. We all hope for the best but make sure we plan for any eventuality. We can reintroduce the furlough now only because we kept the system on which it is based operational, because there was always the possibility that we would be back in this situation. I will leave it to the people of this country to decide whether they believe the Government are trying our best to support people through an unprecedented crisis, to decide whether it is a good or bad thing to alter our economic plans as the health restrictions we face change.

What I know is that the support we are providing will protect millions of jobs. What I know is that it is never wrong to convey confidence in this country and our economy through our words and action. And what I know is that today’s announcement will give people and businesses up and down our country immense comfort over what will be a difficult winter. I commend this Statement to the House.”

My Lords, I am grateful to the Minister for presenting this Statement. It is the latest in a series of announcements and, while there are aspects that we very much welcome, it is a tremendous shame that it has taken so long and required so much frustration and anxiety among businesses and working people. The Labour Party has called for clarity on job support for months. In that time, rather than providing certainty, the Chancellor proceeded with winding down the furlough scheme. That decision was taken despite its apparent success at keeping people employed and warnings of the impact of a perceived cliff edge in support.

Instead of protecting as many jobs as possible, Mr Sunak was honest about the fact that he had decided to focus on so-called viable jobs instead. The replacement scheme was announced with little accompanying detail and, when the information finally emerged, it became apparent that the Job Support Scheme—JSS—would not do, even in the revised form announced mere days before its planned commencement. We now find ourselves with the Coronavirus Job Retention Scheme—the CJRS —extended to March, with a review of the proportions paid by the Treasury and businesses themselves to be carried out in January. This finally provides a degree of certainty to businesses, and we are pleased that they can now plan accordingly. However, not for the first time, the decision came much too late.

This entire process raises several important questions, which I hope the Minister will address. I appreciate that our time is restricted, so I would welcome a letter with any detail he is unable to set out today. What evidence base did the Chancellor draw on when announcing the planned shift from the CJRS to the JSS? Did that modelling predict that jobs may be lost in the short and medium term as a result? If so, how many? How does this match up to the reality reflected in recent figures? Does the Treasury anticipate any of these job losses being reversed and, if so, how many?

My Lords, last week the Minister was not a bit keen on my call for an extension of the 80% furlough scheme to June. Now it looks as though I will get that until at least April, unless there is a poison pill in the January review—though I suspect, quite frankly, that the Government would not dare. I also called on the Government to feed the kids. What a difference a week makes. I am glad they have finally faced up to the realities and have U-turned on quite a range of issues.

They should still do more for the self-employed, whose income support grant ends at the close of December. They cannot be left out in the cold at the turn of the new year. Again, not a thing has been done for the 3 million excluded. The clue is in the name: excluded. There is no point in the Minister quoting programmes that these people cannot access and use. Letting them down is unacceptable.

On the same day the Chancellor made the furlough announcement, the Bank of England announced another £150 billion of QE, which will bring its holding of government debt to over £900 billion. There is a widespread market sentiment that this policy has come to the end of the road. Will the Government comment on that and the implications of negative interest rates, which are now being explored by the Bank? Are we really saying that savings are worth nothing, and that ordinary people need to take increased financial risk in a time of such uncertainty, created by not just Covid but an imminent economic Brexit?

I thank both noble Lords for their comments. I will first address the noble Lord, Lord Tunnicliffe.

The Government have always made it clear that economic support would continue past the end of October and had announced the Job Support Scheme to do just that. Extending the CJRS, or furlough, responds to the latest economic conditions and the national lockdown in England and similar restrictions in the devolved Administrations. The Government have acknowledged that they have not been able to support everyone in the exact way they would want, but they have been proactive in addressing gaps in the scheme where possible. This partially addresses the points of the noble Baroness, Lady Kramer; for example, under the second SEISS grant, self-employed traders facing reduced demand or who are temporarily unable to trade due to Covid were made eligible. It has not been practically possible to include certain groups without introducing unacceptable fraud risks.

The vast majority of the British public has come together, followed the law and helped to prevent the spread of the virus. We are confident that communities will rise to the next challenge and play their part as we come together to fight the second wave this winter. The noble Lord asked about compliance. To ensure that people can continue complying, we have introduced a comprehensive package of support, including extended SSP to employees when they are asked to self-isolate, and for workers on low incomes a one-off payment of £500 under the self-isolation support payment scheme.

Individuals who are asked to self-isolate by NHS Test and Trace because they have tested positive for coronavirus, or been identified as a contact, may be eligible for the test and trace support payment provided that they meet the other criteria. If individuals are identified as a contact by the NHS Covid-19 app but they have not been contacted by NHS Test and Trace, they cannot currently apply for the scheme. App users are anonymous, which means that the local authorities that administer the payment scheme cannot confirm that they have been asked to self-isolate. Further work is ongoing to determine if the scheme can be extended to individuals who have been identified as a contact only through the app, while adhering to data privacy requirements.