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Unemployment | What will the Covid-19 recession look like? Data gathered by Tortoise for the corona shock tracker has already shown that the economic impact of the pandemic has been uneven when it comes to consumer spending. What about the toll on jobs?

The hopeful Chancellor

The hopeful Chancellor

Rishi Sunak is diligent and decent, but is he the man for the job of saving the British economy?


transcript

[Audio clip: Sunak summer statement July 8: “People are anxious…left without hope.” ]

Rishi Sunak isn’t the only one who’s anxious.

There are 9.5 million people furloughed in the UK, their lives in limbo and uncertain as to whether the coming weeks will see them heading back to work or jobless. There are as many as three million people economically stranded without support – whether they’re freelancers, new starters or self-employed who don’t qualify for any of the government schemes. Roughly half a million people graduate this summer, joining a labour market where one third of 18-24 year olds have been furloughed or laid off. The anxiety is infectious; unemployment is spreading.

Meanwhile, there’s a brisk trade these days in profiles of Mr Sunak, each of them cutting and pasting, cantering through much the same details of the Chancellor’s life – son of a GP and pharmacist, a family of Hindu Punjabis from East Africa who settled in Southampton in the 1960s; school at Winchester; PPE at Oxford; Goldman Sachs, then into hedge funds; his marriage to Akshata, the daughter of a billionaire Indian tech entrepreneur; elected to Parliament in 2015; a zippy dresser, teetotal, teenage Eurosceptic, charming and courteous; these profiles are typically signed off with an admiring quote from a friend (or someone who wants to be) – and they end, invariably, with the calculus on his chances of becoming Prime Minister.

But forget Mr Sunak’s job prospects. What about everybody else’s? What does his record, five months in office as Chancellor, tell us about how he will fight on the second front of the pandemic – the economic contagion of unemployment. Is he, really, the man for the job?

[Audio clip: The rise of skywalker]

On the evening of December 20th last year, Rishi Sunak went out for the evening to see the final episode of the Star Wars saga, The Rise of Skywalker, with his then boss, the Chancellor of the Exchequer, Sajid Javid. Just over 50 days later, Javid was out; Sunak was in; the rise of the Chancellor had begun.

Because, no doubt, Mr Sunak is a fresh and welcome political talent; he promises to be the most important appointment of Boris Johnson’s premiership – not as noisy as Dominic Cummings, but much more impactful; he’d barely found the coffee machine when the pandemic struck; and he has already proved diligent and decent, a modern sympathetic communicator – he passes the first, essential test of political leadership, he can speak to the moment:

[Audio clip: Sunak: “We will do whatever it takes…”]

And he can speak, hopefully, to the future

[Audio clip: “I believe in the British people’s fortitude and endurance…”]

And, so far, Mr Sunak is a man who has his party, not to mention a fair section of the press pack and a good deal of the public, swooning.

[Audio clips:

  • BBC newsnight, Sunak’s meteoric rise: “A man of the utmost ambition”
  • Matt Chorley Times Red Box, complaints from aides that they “can’t yet clone Rishi”
  • George Parker FT, “extremely competent extremely sharp”, BBC R4 profile
  • Katy Balls, Rishi as future PM, BBC R4 profile

The hard-bitten pack of lobby journalists have turned their gaze from Boris Johnson to Rishi Sunak, as if they were having their own Bridget Jones moment en masse, having fallen for the Hugh Grant charming ne’er do well, they’re beginning to have feelings for the Colin Firth straight man.

And, by the looks of the polls, the public feel something similar: the YouGov polling numbers after his Summer Statement on July 8th had nearly 6 out of 10 people saying they thought he was doing a good job as Chancellor; just one out of 10 saying he wasn’t (Boris Johnson, by comparison, has 50 per cent of people thinking he’s not done a good job in his first year; 46 per cent saying he has).

Mr Sunak’s public image is no accident. There are some jobs he has, indisputably, created – and they’re in his own PR team: Underlay, Clerkenwell Brothers music: Cass Horowitz, the son of Anthony Horowitz, author of the Alex Rider series, and founder of the creative agency The Clerkenwell Brothers – here’s the backing track to their sizzle reel, now – designs strategies that straddle social media and TV – as they put it, “Imagine David and Goliath; we are the slingshot”. ; Allegra Stratton – an old friend of Mr Sunak’s – recently moved from ITV to run strategic comms (Just to note – Allegra Stratton and I were colleagues for a while at the BBC).

Together, the Sunak comms team is showing the way to turn a Chancellor into a social media channel. It’s not just that the photo-opps are carefully choreographed; that’s been true for any politician with an ounce of ambition since Ronald Reagan brought Hollywood production values to the presidency. It’s that Rishi Sunak has had the digital consultancy treatment: his Twitter and Instagram announcements are stamped with the Rishi Sunak signature, tax policy stamped like designer jeans; his posts are a festival of fonts and primary colours graphic design; and his social media team is working the algorithm. There’s a parlour game in Westminster parodying Brand Rishi; pretty soon his parliamentary colleagues will be plagiarising the techniques.

But one of the foibles of journalists is that we report what we understand and what doesn’t matter, over what we don’t that does. Economics is complicated at the best of times; right now, it’s unknowable. The Government is meeting a test like no other, because the virus is new and partially understood, its impact on livelihoods just as unpredictable. Political reporters generally struggle to keep score on economic policy and keep track of business confidence; in 2020, it’s a wildly moving target and unemployment threatens at a scale that goes beyond anyone’s lived experience.

To put the coming unemployment crisis in some context:

  • the 2008-09 financial crisis delivered a 6 per cent hit to GDP, but knocked just 2.8 per cent off the employment rate;
  • the 1990s recession saw GDP contract by 3 per cent, but hit employment harder at 4.5 per cent;
  • even the 1980s, when GDP was down 5 per cent, employment was down 6 per cent;
  • in 2020, the Bank of England, the OECD and private sector economists are forecasting a doubling, some even a tripling of the unemployment rate – from 3.9 per cent to nearly 10 per cent; some put it between 11 and 14 per cent. That’s a rise in the number of jobless people from 1.9 million to more than 4 million in a year. The last time the UK saw unemployment on anything like that scale, Neville Chamberlain was Chancellor of the Exchequer.

In their back to back Microsoft Teams meetings at the Treasury, Mr Sunak and his team are looking at the same statistics and the same research. The dominant fear is what’s known as ‘scarring’ – the damage that unemployment does to the life of an individual and those around them (people who’ve been out of work when they’re young can be earning more than 10 per cent less than their peers well into their 40s); the damage it does to certain industries and institutions, the damage it does to groups of people, particularly women, Black, Asian and ethnic minority people, people living in power towns and the countryside.

Listening to the daily news reports, it feels like cycling uphill; just as you get to the crest of one hill, another comes into view.

But, the point is, it’s the economics, much more than the politics, that’s going to count.

And since his first Budget at the beginning of March, each week has seen Mr Sunak playing catch-up with his last announcement.

The 11 March Budget was an act of wishful thinking; the Chancellor offer a laundry list of giveaways – each of course, with their own tweet – for football pitches and flood defences, tax breaks for veterans and sanitary products, action on fly-tipping, deals on fuel duty – the standard fare of an aspiring politician, an assured debut at the despatch box, ticking off lobbies, playing to the gallery, waiting and seeing. As if we were in normal times. But, even by then, we knew we weren’t. No-one died of Covid-19 in the UK that day; but nearly 200 people did in Italy, and more than 2,000 new cases were reported in 24 hours. The Chancellor earmarked just £7bn pounds to fill the coming coronavirus hole in the economy and, before he even sat down, it was clear he’d have to get back up again.

A week later, 17 March, Mr Sunak was back. This time throwing £330bn – equivalent to 15 per cent of GDP – behind loans to support businesses, but, even before the scheme was announced he’d been warned that distributing the money through the commercial banks wouldn’t work, and it didn’t: by the end of April, the Coronavirus Business Interruption Loans Scheme had managed to get only £4bn pounds out the door, just over one per cent of the money allocated. He stepped in with a Future Fund for start-ups, which for different reasons hasn’t much worked either. And throughout April, companies were shut down and fearful of their future; the prime minister was off sick, the Chancellor made just three appearances at the Downing Street press conference; and, it was only at the end of the month, 27 April, that the Chancellor announced the Bounce Back Loans, which, within a day had funnelled half as much money into businesses as the CBILS had in six weeks.

A week after CBILs,  20 March, the Chancellor was back with the announcement of the Job Retention Scheme. The furlough. A term we’d never heard before; now the word of 2020. And of course, he had to come back a week after that – 26 March – with something similar for the self-employed.

Either all this is evidence of his iterative, fleet-of-foot response to the recession; or it’s something else. The pattern of a Chancellor whose weakness is to hope for the best – whose interventions come a week late and a pound short.

To be sure, the Chancellor has not acted on the cheap. There’s never been anything on the scale of the furlough schemes – either in financial or human terms – and it has not only kept millions of people at home with the hope of a job to go back to, but, and this isn’t often said, it has meant that the Government has, in effect, put its people under house arrest for months and it’s been largely crime-free and peaceful.

But the real tests – as Mr Sunak and his team in Number 11 know – lie ahead, not behind them, but in the months to come. Lockdown was drastic but, in its own way, sweeping and simple; the restart is even more complicated and treacherous. Economies lag. Autumn looms.

As the days get shorter after the summer, the hopes will start dimming for countless businesses. Many simply don’t have the reserves to make it through another lockdown, local or national. Others can’t see how to make ends meet if they have to observe social distancing and operate with half their tables empty or half their offices full. Mr Sunak’s decision to ratchet up the costs for employers of keeping people on furlough in August, September and October means the twilight world of furlough is coming to an end. Redundancies, in their hundreds of thousands, come next.

On 8 July, when Mr Sunak delivered his Summer Statement, the rabbit out of the hat moment was the Chancellor’s ‘Eat out to help out’ plan, a one-off £10 per person discount at bars and restaurants on Mondays, Tuesdays and Wednesdays in August. To be fair, I’ve always thought that there’s a devil’s bargain behind these Budget gimmicks: the Chancellor’s team wants to control the next day’s front pages and so they throw something shiny in, in this case, Eat out to help out with a Wagamama’s photo-op attached. And, with our magpie minds, we in the media play along. Sure enough, ‘Dishy Rishi’ carrying two plates of food is on the front pages and leading the bulletins. And we’ve allowed the newest, shiniest, most eye-catching image to overwhelm the real judgment call, the big idea (It says something about the Treasury’s feel for business that many restaurants themselves can’t see how Eat Out to Help Out will work; they don’t have enough working cash in their weekly budgets to be knocking £10 off each bill and recouping the money later).

But let’s go back gto the real judgment call the pivotal decision in the Summer Statement – the one that will pursue Mr Sunak into the autumn – was the categoric closure of the furlough scheme in October.

[Audio clip: Sunak explanation of closing the JRS in the Summer Statement. “I’m also sure, that if I say the scheme must end in October…”]

Other countries in Europe – France and Germany – have extended their schemes out into the future. From the start, the Treasury’s biggest fear about furlough was not that people would resent the scheme, but they would love it. That they would stay at home and have little incentive to come back to work.

The arguments for closing the JRS were financial (it’s cost – nearly £30bn so far; £80 billion by the time it closes in October); philosophical (Conservatives believe in market forces, not state subsidies); political (the longer the furlough period, the bigger the price, both in jobs and tax revenues, of closing it down) and practical (it’s hard to put in place new job support schemes, while the furlough scheme is still in operation). And the Treasury’s priority has been keeping people in the jobs they have got; hence the £1,000 retention bonus for employers. But, as yet, there are no plans for job support for industries that can’t reopen; no link between future support and demand; no tie-up between job support and possible local lockdowns; no partial furlough for companies that can only partially open. So when the job losses come, many people will point to the Chancellor’s decision to close the JRS. Unless and until we see Furlough II – the Sequel.

Meanwhile, with each week, bigger, more searching questions that attend Mr Sunak’s policy choices:

Nearly a quarter of people are not responding to or not reached by the test and trace programme – in some deprived areas like Luton, Rochdale, Oldham, Blackburn, it’s closer to half where no contact is made. One of the main reasons is economics. If contacted and asked to isolate for 14 days, people are give up their incomes for £96 per week statutory sick pay; employers have to pay it and many can’t fund it; employees, many who have already drained their savings, can’t afford it either. It’s little wonder so many people on low incomes are not answering the test and trace call. If, as is likely, the next round of infections continues to hit the poorest and people on precarious contracts, then the finger of blame will point not just to the virus, but to the Chancellor for failing to make self isolation economically viable. There will be a direct line from economic policy to the mortality numbers. It will lead to Mr Sunak’s door.

The excluded, meanwhile, are getting organised. Martin Lewis, the Money Saving Expert journalist, has become their champion. Two Parliamentary committees have weighed in, criticising the Chancellor.

[Audio clips: of critics “millions of us” forgotten…]

And so he finds himself at odds with the newly self-employed, the self-employed earning over £50k a year, those earning less than 50 per cent of their income from self-employment, the new starters, those denied furlough, the PAYE freelancers, those who pay themselves through dividends as limited company directors, all these people have watched as others get government assistance through the lockdown and they get none. The Treasury has explanations for why none of them qualify. But three million people is not a disaffected lobby group; it’s the population of Wales.

The refusal, so far, to tailor support to sectors in particular trouble is increasingly untenable. With the exception of a £1.6bn package for the arts sector, Mr Sunak has preferred so-called ‘horizontal’ interventions that offer support across the whole economy; but the pandemic is not nearly so even-handed; it hits some industries worse than others. It’s sectoral. The stock markets are booming, the financial services industry is so far ticking along, online retail leapt five years in three months, Jeff Bezos must be pinching himself; but airlines and tourism, universities reliant on overseas students and conference business, city centre shops and restaurants dependent on office workers, theatres, nightclubs, cinemas and museums, pubs and restaurants and the food supply chain can’t see how they will get fully back to work this year, if at all. And as the closures and redundancies pile up, they will cluster in around certain groups of people and places. Unemployment will be generational, gendered and geographical – younger, more female and tougher on more deprived areas.

And then there’s the biggest, unanswered question of all: how will the Government pay for all this? Of course, when Sunak entered Parliament, he subscribed to Tory orthodoxies.

[Audio clip: Sunak in July 2015: “Under this government Britain will live within its means…”]

But that was then. Rishi Sunak has spent and borrowed on a scale like no Chancellor – Labour or Conservative – before him. The Office for Budget Responsibility, which keeps track of these things, also can’t confidently tot up total Government spending for the year; it’s estimating £300bn. To give that sum a little context, the Government was due to borrow a further £55bn in the course of this financial year; it borrowed £100bn in a couple of months.

Today, Mr Sunak prides himself in not being bound by partisan orthodoxies:

[Audio clip: Sunak: “We entered this crisis unencumbered by dogma..”]

And, here, Mr finds himself largely endorsed by economists on left and right. This recession, for all the cliched overuse of the word, is unprecedented. Governments globally have mandated the shutdown of the economy. They’ll have to fund it through debt; in time, the only way to pay down those debts is to raise taxes, cut Government spending or let inflation rip and reduce the relative value of the debt or come to an international agreement on debt forgiveness – this is generally dismissed by economists today, but if it was good enough for John Maynard Keynes as he set out in Economic Consequences of the Peace, it’ll no doubt be reexamined in the years to come.

These are choices that will reshape the UK, redefine economic Conservatism and, of course, determine Mr Sunak’s place in history. His summer statement ended with a political flourish. The Plan for Jobs ended with a comment that was about the country, but, knowingly, about him and his job too.

Clip: Governments, much less people, rarely get to choose the moments that define them. What choice there is comes in how we respond.

Mr Sunak’s next big moment is still a few months off. Possibly, too far off. It’s the Budget in the Autumn. And if you ask the Treasury, what plans there are for paying down the debts that are mounting up – how the UK will respond -, they’ll tell you Mr Sunak is considering options. So far, he is choosing none. Perhaps, he is hoping that the recovery comes sooner and is steeper than many predict.

Because, hopefulness is a recurrent theme in Mr Sunak’s response to the Coronavirus. So far, reality has kept catching up with him. But his friends say that hopefulness is in his character. Others that there’s an economic virtue in being hopeful; a gloomy Chancellor would sap confidence, depress demand and make matters materially worse. Hopefulness, it’s to be hoped, will unleash the animal spirits of the economy and help put people back to work.

Mr Sunak is, in more ways than one, the hopeful Chancellor.