- The government expenditure levels for its main stimulus schemes to support businesses during the pandemic has already reached astronomical levels, crossing £50 billion mark
- Businesses are strongly lobbying against the withdrawal of the furloughing scheme in October, stating that many of the industries are still facing challenges recouping from the pandemic, and would be forced to lay off workers
- The public debt levels of the government have reached unprecedented highs in 2020, with the OBR estimating that they could rise to £372 billion for the full year
As the months pass by since the lockdown was opened, the British government is eager to withdraw many of its stimulus measures that it had rolled out in the month of March to help the businesses in the country fight the pandemic. However, the uneven recovery levels being witnessed in different industries since the reopening is making it difficult for the government to initiate a blanket withdrawal of the scheme without causing major business disruptions. Moreover, the situation on the pandemic front is also showing little signs of improvement. Till 5 August 2020, the virus has infected about 306,293 people in the country out of which 46,299 have already lost their lives to it, and the NHS is nowhere close to putting a cap on the number of new infections. The only hope now the country has to be back to business, as it was before to March 2020, is to have an effective vaccine, and get a major part of the country vaccinated, which currently does not seem to be possible before the end of this year.
The cost of the stimulus schemes and its impact on the public debt situation in the UK
The Coronavirus business Interruption loan scheme (CBILS) under which the Bank of England had undertaken to guarantee loans given to businesses to business slowdown during the lockdown period has cost the government nearly £50.9 billion so far. Then the other major scheme the Job support furloughing scheme which is currently benefiting nearly 9.6 million people in the country has till now cost the exchequer about £33.8 billion. Apart from the above, there are also a number of other schemes that had been rolled out since March of this year which are directly and indirectly adding to the bill the exchequer has to foot. The Office of the Budget responsibility (OBR) in its estimate has stated that the public debt levels of the government for the full year will be around £372 billion, which is the highest borrowings in peacetime in nearly a century. The OBR further stated that in order for these debt levels to remain within manageable limits the government needs to expand its tax base as well as its tax rates and raise about £60 billion a year, which needless to say would put a lot of pressure on the economy. Thus the government has now been caught between the demon and the devil, with rising debt levels, on the one hand, threatening to destabilise the economy and on the other hand sudden withdrawal of the stimulus, schemes would undo a lot of good that has been done in the past couple of months.
The recovery status of certain industries post opening of lockdown
Not all industries have been recovering well since the economy was reopened in the month of May. While the retail sector and the housing construction sector have shown sharp recovery during the past three months, sectors like the hospitality and aviation have shown very poor recovery levels. The people being brought back from furlough by each of these industries is also varying according to the recovery levels each industry is facing along with the workplace safety constraints imposed by the government on each of them. In the months to come, certain industries like the hospitality industry could see a higher rate of growth as they saw a late opening up, while the surge in demand in the retail sector witnessed in the last couple of months could cool down as the pent up demand from the lockdown period start to abate. For the housing construction sector, however, a sustained demand may be witnessed as the government has taken up measures to boost demand for new houses in the country.
Furloughing scheme’s role in keeping the business environment in the country intact
The furloughing scheme has played a major role in protecting the British economy from sinking into a deeper recession. People who did not lose their jobs because of the schemes not only helped keep many businesses from going bust but also helped the entire economy by not allowing the unemployment levels in the country from spiralling down uncontrollably. The scheme also has a strong role to play in the recovery process. Since so many experienced people did not lose their jobs, there was less displacement of labour, and when the businesses started to open up after lockdown, or when they do try and expand their business activity levels, they will have readily available manpower to help them in their endeavour.
However, now that many of the businesses have been benefiting from the scheme for a few months now, some are reluctant to bring back their staff early to give themselves more time to ensure they gather more strength. The government has now come to offer these businesses £1000 for each employee brought back, but a recent survey showed that only 43 per cent were willing to take the governments to offer.
The biggest impediment, however, that remains in the recovery of the economy is the lack of clarity on how long it will take for the pandemic to come into control in the country. People will be afraid to come out of their houses, and some form of social distancing measures will always be there as long as the threat of the pandemic exists. Moreover, it is likely that the pandemic might make a resurgence in the winter months, as is being suggested by many experts given the experience with past coronavirus hits like SARS and MERS, which could potentially put all the recovery made in the past few months out of gear.
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