Government was not transparency regarding the £30 billion jobs plan: IFS

Summary

• IFS blamed the government for lack of transparency regarding its new jobs plan, and said that it reduced earlier planned spending with less fanfare, which is misleading
• OBR estimates put the job plan spend at a £10 billion lower value than projected by the Chancellor
• UK Treasury rejects the claims and says these are new investments to support employment across Britain

The Institute for Fiscal Studies (IFS), Britain’s leading thinktank said that the corona jobs plan will ultimately cost the Exchequer only £20 billion, as it slashed £8 billion worth of previously planned expenses.

The £30 billion plan for jobs was announced by Rishi Sunak, Chancellor, UK Treasury on 8 July 2020, as part of the summer economic update.

On top of this, the Office for Budget Responsibility (OBR) has come out with its own independent estimation of the same plan. It said that the plan will lead to an additional fiscal expansion of merely £20 billion (against £30 billion calculated by the HM Treasury department).

If these figures are to be believed, the net government expenditure towards this much talked-about job plan will be about £12 billion.

Details of the plan for jobs

The plan introduced a £1000 Job Retention Bonus per employee, so that firms can continue to retain furloughed workers, even after the government furlough scheme expires in October 2020. This bonus will start to be paid from February 2021.

Second, it announced a £2 billion Kickstart Scheme, to generate jobs for youngsters (age group 16 to 24), for a six-month period.

Third, the plan set forth £1.6 billion for apprenticeships, career counseling, job-support schemes, and trainings. This will raise skills and make people more employable.

Fourth, it put out £8.8 billion towards new infrastructure projects, which would create additional jobs.

Fifth, the plan declared a spending worth £5.8 billion for construction projects, to meet the same end.

Sixth, Sunak slashed VAT (value added tax) rates from 20 to 5 per cent for the ailing hospitality and tourism sectors. This would reduce the prices of goods and services being offered by the mentioned sectors and increase consumer demand, thereby resulting in savings of £160 per household annually. It will also protect jobs in these sectors, by making the involved firms survive the pandemic. The move is predicted to support roughly 2.4 million people employed collectively by the tourism and hospitality sectors in the UK.

And last, the Chancellor temporarily removed the stamp duty on homes purchase with a value of up to £500,000. This exemption will be allowed till 31 March 2021. It would drive the growth of the housing sector and create new jobs there. Government analysis forecasted that with this move, every 9 out of 10 people buying homes in England and Northern Ireland will not have to pay any stamp duty on their transaction.

Does the acquisition hold any value?

Paul Johnson, Director, IFS explained that while it is all-right for the government to change its priorities according to the need of the hour, especially during the unprecedented corona crisis, but official policy documents should clearly list out any such considerations. Otherwise, it could create room for misunderstandings and misinterpretations, lamented the thinktank. It went on to add that if no lucidity is offered, it could amount to corrosion of trust.

IFS was set up in the year 1969 as an independent research institute and promotes development of effective fiscal policy in the UK.

A £2 billion Green Homes Grant scheme would be using pre-planned expenditure, and the £400 million allocation towards skill development also seems to be using reallocated funds, according to IFS.

Moreover, the £5.5 billion of additional capital expenditure stated by the Prime Minister Boris Johnson few weeks back was actually allocated earlier, is not expected to take place in 2020, as a result of the corona led recession, in the opinion of IFS.

The thinktank also claimed that there is confusion over finances for Northern Ireland, Scotland, and Wales, under the Sunak’s job plan, and that the same should be clarified. According to IFS analysis, Scotland is slated to receive merely £21 million under the job plan, and needs more details about it.

However, the UK Treasury has outrightly rejected the allegation. A treasury spokesperson commented that while it is true that some other projects are witnessing lower disbursements, due to the pandemic led uncertainty, but this is an absolutely new financial support, especially aimed at protecting jobs across the nation.

So, the main question which the IFS seems to be raising is that is the government doing enough to support the British economy during the Covid-19 pandemic. There are no simple answers to this question. The public debt is already touching record levels, totaling close to £350 billion for the year 2020. Further, with no signs of demand uptake and production activity resuming to pre-corona levels, things are expected to be even trickier in the coming few months.

As a summary, while Rishi Sunak announced a £30 billion jobs plan to support the UK from falling into a mass unemployment ditch, as a result of the coronavirus pandemic, leading think tank IFS claimed that all if it is not fresh investment. Around £8 billion has come about by cutting into previously planned government expenditure. This is misleading and non-transparent on the part of the government. However, the UK Treasury has rejected the claim and said this is fresh financial support being offered. Moreover, unprecedented times like these may require re-prioritisation of previous plans, to spend the limited money available wisely. Whatever might be the case, the real efficacy of the job plan will let out only when it delivers on its promise of creating new and sustaining existing jobs in the sluggish economy of Britain.