“In a move cribbed from the Danish government - who last week offered to pay 75% of the salaries at private companies - new Chancellor, Rishi Sunak, delivered his much trailed package of measures to shore up the finances of UK Households at today’s daily Coronavirus briefing,” comments Kevin Doran, chief investment officer at AJ Bell.
“In an unprecedented move, the UK state will step in to pay 80% of all ‘furloughed’ staff for at least the next 3 months (up to a maximum £2,500/month), backdated to the start of March.
“Not done there, he went further with a 3 month VAT holiday for businesses, an increase in Universal Credit and an opening of the Universal Credit gates to the self-employed.
“With the furlough funding scheme running at an estimated cost of £45bn over the 3 month period*, the strategy puts enormous weight on the assumption that the UK will have ‘turned the tide’ on the virus over the next 12 weeks. Added to the other measures, the bill could come in closer to £60bn in the next quarter.
“It’s high risk and high stakes, given that the total wage bill in the UK amounts to almost £1.1 trillion/year and a prolonged furloughing may see that figure creep up over time. Should the hibernation of UK workers run into 6 or even 9 months, the bill for today’s policy could easily run into the ‘hundreds’, instead of the ‘tens’ of billions in a world where tax receipts will be significantly down already.
“Positively, it’s a step on from the playbook of the last crisis. Given the production chasm about to open up in the UK economy, it was important to give households some form of certainty over either income or relief from their expenses. Today’s plan does that and moves us away from the trench warfare tactics of the last crisis against an enemy that has gone airborne.
“An alternative option – though it’s probably too late for that now – would have been to relieve the most pressing expenses for households via a debt relief programme. With an estimated cost of c.£60bn over six months, this alternative plan has the beauty of being initially funded by the banking system rather than the taxpayer - which given the public stepped up to the plate when it was the banks in peril, feels like a politically more palatable approach to have taken.”
*estimated 6m people x £2500/month * 3 months
Labour force data on employment by industry:
Dec-19
All in employment 32,983
Public sector 7,174
Private sector 25,696
Agriculture, forestry & fishing 338
Mining, energy and water supply 547
Manufacturing 3,011
Construction 2,310
Wholesale, retail & repair of motor vehicles 4,089
Transport & storage 1,574
Accommodation & food services 1,745
Information & communication 1,498
Financial & insurance activities 1,276
Real estate activities 386
Professional, scientific & technical activities 2,540
Administrative & support services 1,545
Public admin & defence; social security 2,130
Education 3,428
Human health & social work activities 4,515
Other services 1,902
Labour Force Survey - ONS