Rishi Sunak offers help to check job losses as the economic recovery tapers off in August

Summary

• Government to pay for up to 67 per cent of salaries for companies that are forced to close temporarily due to coronavirus related restrictions
• New containment measures threaten to derail UK economy’s growth
• GDP growth has already slowed down in August 2020, as compared to earlier few months

Britain’s economic output grew at a feeble pace of 2.2 per cent in August 2020 as compared to an almost triple growth rate of 6.4 per cent observed during the previous month of July 2020, according to the latest estimates from the Office for National Statistics, UK.

The country’s economy had shrunk by more than 9 per cent for the post-pandemic period of February to August 2020 as compared to the corresponding period in 2019.

Rishi Sunak, Chancellor, UK Treasury recently announced that the UK government would be reimbursing up to two-thirds of employee salary bills for those employers who might have to shut down their operations due to tightening of coronavirus related measures across the nation. The government aid would be capped at a monthly amount of £2100 per employee.

The scheme has been announced before the new set of social distancing restrictions arrive, which are expected to come into force within the next few days in different parts of the country. These localised restrictions would vary according to the infection rate prevailing in any region.

The chancellor assured that these salary support measures would provide a safety net ahead of a tough winter season to come. He elaborated that Scotland, Wales, and Northern Ireland governments would also be given higher financial support to protect their businesses.

It is clear that while the popular scheme of furlough which is due to expire on 31 October 2020 is once again being resorted to, though with a different name, given the devastating impact of the pandemic, more so with the advent of the second wave.

In fact, this new scheme would not require smaller employers to make any contribution from their side (unlike the furlough scheme) towards staff salaries in case they are closing down their business due to any legal restrictions on operating businesses, imposed by the government.

The scheme is equally generous to the large sector businesses who are told to make merely a 5 per cent contribution towards their employees’ pay cheques.

Sunak’s critics continue to emphasise that his responses are rather slow, insufficient, and would increase layoffs. They insist on revising the new employment scheme to further incentivise employers to retain staff and control any further redundancies at any cost, which could destabalise the society.

While closed companies would surely benefit for the scheme, but small shopkeepers confronting a sharp slowdown in sales would not get any relief, argued Usdaw, the union of shop, distributive, and allied workers.

Sources revealed that while an official announcement is awaited, however, hospitality sector could be officially shut down at some locations in the next few days, if the corona cases continue to rise, despite tighter restrictions.

August’s national output

The gross domestic product (GDP) growth for the month of August 2020 had been sluggish, as was being anticipated by market experts, due to the second Covid-19 wave. In fact, September’s national output is expected to be worse than this as tighter restrictions had been put in place at various parts of the nation.

For August 2020, farm output for the UK economy fell by 0.4 per cent on a y-o-y basis, index of production grew by a paltry 0.3 per cent, services output shot up by 2.4 per cent, and construction sector rose by 3 per cent.

Britain’s GDP had contracted by 2.1 per cent during Q1 2020 and further by a worrisome 19.8 per cent during Q2 2020, bringing the economy into the state of a recession.

Northern Mayors not happy

North of England Mayors cautioned that the new jobs scheme being introduced by Sunak would be inadequate to support employment across the city and many jobs would get destroyed. These Mayors have in fact asked MPs to reject this financial aid in the house of Commons.

Andy Burnham, Mayor, Greater Manchester area said that this support was not enough and shall not protect the entire community as more hardships are expected with the coming winters. He also felt that this plan would further increase the north-south divide, which was undesirable.

The number of daily coronavirus cases detected across Britain was a little less than 14,000 on 9 October 2020, which took the total infection toll for the deadly virus to more than 575,000 till that day.