Lockdown Impact: British Household Income Decline to £515 per month

The disposable income of the average British household has taken a beating due to the lockdown conditions imposed by the government. The Centre for Economics and Business Research consultancy has come out with a report that the disposable income of the average British households after it has been adjusted for tax and benefits, could very well fall down by 17 per cent in this quarter of the year, which effectively translates to £515 per month. The analysts at the consultancy while estimating that the consumers in the country will have at least £14.2 billion per month less to spend, also estimated that the impact might not be as hard felt as it may seem, as several of the key components in the WPI (wholesale price inflation) basket have seen a massive fall in prices, especially the petroleum products. The consultancy in its report also stated that the situation on this front could have been twice as bad if the government would not have come up with its furlough wage-subsidy programme.

Since the beginning of the coronavirus outbreak, the movement of people had been restricted, and after the lockdown conditions were imposed by the government, normal life in the country got paralyzed. The outbreak of the pandemic and the lockdown conditions that have been imposed have pushed the country to the brink of a recession. Almost all business establishments in the country have seen a significant reduction in their activity and consequently the revenue levels, as most of the citizens of the country are locked down in their houses for fear of getting infected by the virus if they venture out. With exception to a few sectors like pharmaceuticals, online retailing and healthcare, all others have been in utter distress. The above three sectors have been showing good business activity in this period as they have been providing critical services in fighting this pandemic and keeping the people adequately provisioned. The International Monetary Fund in its report released on the 14^th of this month had predicted that the British economy would experience a deceleration of by 6.5 per cent this year owing to the pandemic lockdown. During the same week, The office for the Budget responsibility the official budget watchdog of the British Government came out with a report on the same subject which also stated that the British economy would be witnessing a shrinkage by nearly 35 per cent during the April and June quarter this year and by 13 per cent for the full year of 2020, if lockdown conditions are not extended further. While terming the current pandemic lockdown conditions as a worst economic crisis faced by the country than the 2008 financial crisis, OBR (The Office for the Budget Responsibility) stated that the recessions would be severe with the economic crisis to be the worst, been faced by the country since the World War 2, while it also estimated that the lockdown conditions could increase unemployment in the country by close to 2 million. The British Chambers of Commerce also came out with an estimate of its own and reported that as much as two-third of the employers in the country are expected to apply for the governments Furloughing scheme that had been announced recently whereby it has promised to bear 80 per cent of the salary costs of employees retained by these businesses while only 20 per cent would have to be borne by the employers and that too not mandatorily. While rolling out the Furloughing scheme the government had estimated that only about 10 per cent of the companies who are eligible will avail of this scheme but now it seems far more number of companies will be applying under this scheme that is likely to cost the exchequer as much as three times higher. The governments other forecaster The Office of the National Statistics also came out with a report last week estimating that as much as a quarter of the businesses in the United Kingdom have either shut shop temporarily or are trading far below their productive capacities and are waiting to scale back up when better times come to prevail. Due to this as much as a third of the employees in the country are at the risk of being Furloughed.

The British government knows that if it has to protect the economy, it has to give employment the topmost priority. Even if it won’t be able to protect each and every job in the country, it has made an attempt to protect as many as it reasonably can. Even when the first stimulus measure was announced, the government directed it towards businesses to pay for their staff while the revenues suffered because of the slowdown. Still, there are millions of self-employed people and part-time workers in the country those who have been driven out of employment due to the pandemic and have currently no means of supporting themselves. Falling employment levels could be the most potent contributing factor in the shrinkage of the British economy in the coming few months, which is already facing a demand shock due to the lockdown and if the situation continues to deteriorate on this front, the country could plummet further into a much sharper recessionary trend. The current scheme while entailing payment of up to £2,500 per employee per month does not make any requirements on the part of the businesses to contribute on the salaries, which effectively means they can very well cut the salaries of staff by at least 20 per cent who earn more than £2,500 and use the funds to pay for their other obligations. The benefit of these schemes it seems now will be better derived by companies and large and midsized businesses who have more permanent staff rather than the ones employing more temporary ones.

It is worth mentioning here that the British government had last month rolled out several stimulus packages taking into view of the deteriorating business conditions in the country and the high risk of unemployment. Despite all these measures the number of people applying for welfare benefits are staggering in the country, last week the British Work and Pensions office reported that the welfare benefit claims in the country has reached a figure of of 1.4 million in the past one month since the lockdown has been imposed. It is very important that the government must take drastic steps both on the NHS front as well as the stimulus support from if it has to keep the citizens of the country from falling into a long drawn economic crisis.