Latest news with #CoronavirusJobRetentionScheme
Japan Times
04-08-2025
- Business
- Japan Times
'Long COVID-19' hits the U.K. economy harder than most other countries
Britain's economy is still suffering from long COVID-19. The unmatched spike in public debt, the 1.2 million extra people on sickness benefits, the record postwar tax burden, the bulging size of the state and — above all — weak economic growth are the lasting symptoms of decisions taken during the pandemic. But some of the harm was purely accidental. "I will be honest, this was a mistake,' says Tim Leunig, referring to the size of the £70 billion ($93.2 billion) furlough program he designed to protect people's jobs and income after the country shut down in March 2020. Leunig, the chancellor's chief economic adviser at the time, thought he'd been clear about his Coronavirus Job Retention Scheme. It would cover as much as 80% of the average monthly salary, then £2,500. In other words, the payment was meant to be capped at £2,000 a month. But officials misread his draft to mean a £2,500 limit. "We were absolutely exhausted, as you can imagine. We'd be working through the night. I thought we were agreeing £2,500 and people would get 80% of that — £2,000. And then we announced it, and I went; 'Whoa, what's happened?'' The bailout state What happened, beyond a couple of billion pounds spent on an administrative blunder, was that COVID-19 changed people's perception of the role of the state. A government analysis in 2023 estimated £373 billion was spent on the pandemic, 13% of national output, the biggest rescue package since World War II and behind only the U.S. Of that, £90 billion went to health and over double, £190 billion, on households and businesses. The state's traditional safety net became a hammock, bailing out "anything and everything,' Leunig acknowledged in an interview. Even Liz Truss, who survived just seven weeks as prime minister in 2022, planned to spend £200 billion rescuing households in the energy crisis — despite declaring herself a small-statist. Much of today's political and economic torpor can be traced to those two years of COVID-19, Leunig believes. However you cut it, and even if factors such as the formal separation from the European Union in January 2021 played a part, Britain has fared worse since the pandemic than peers. No advanced country bar Spain saw a sharper rise in the debt burden between 2019 and 2022 than the U.K. By 2024, Britain was out in front, with the biggest increase in net debt to GDP of all 33 advanced nations assessed by the International Monetary Fund. It was not inevitable. Denmark, Portugal and the Netherlands reduced their debt. Most countries found people were keener to work after the pandemic. Uniquely in the Group of Seven, participation fell in the U.K. as over a million people dropped on to health and disability benefits, costing £13 billion a year. Yet a House of Lords report found no evidence of worsening health in the population as a whole. "It does appear' that COVID-19 provided a training ground for people to claim welfare to prop up their incomes, Leunig says. "Sickness benefits are more generous than out-of-work benefits, so everybody wants to appear to be sick.' Productivity, the wellspring of living standards, crashed and GDP per head has yet to recover to pre-pandemic levels. Toxic legacy Britain's swollen national debt, high interest rates, rising benefit bill and lackluster growth have left a toxic legacy: a historic postwar tax burden and crumbling public services, as debt interest cannibalizes departmental budgets. It is no accident that dissatisfaction with the National Health Service is worse than it's been since the British Social Attitudes survey began in 1983. This new social contract, that the taxpayer pays more for less, is arguably what's driving voters to Nigel Farage's populist Reform party, which polling shows would top an election today. COVID-19's fingerprints are all over this economic decay. What grates most for Leunig is that, almost three years since the U.K. launched its COVID-19 inquiry, there is still no formal assessment of the economic response or any comprehensive cross-country comparison. Were nations with loose lockdowns like Sweden right? Should schools have closed? Britain's health outcomes are hardly an endorsement and are worse than Sweden, Germany, France and Spain. Commuters travel on the subway amid the COVID-19 pandemic, in London in January 2022. | Reuters The inquiry has published one report on the U.K.'s resilience and preparedness, but nothing conclusive on the nine other "modules.' Former Prime Minister Rishi Sunak, who was chancellor of the exchequer in COVID-19 and advised by Leunig, suggested on the BBC's "Political Thinking" podcast in March the government had been too slavish in following the science. "All the decisions we made had trade-offs,' he says. "We should have spoken more openly about them. The broader reflection is, does our political discourse allow enough space for honest conversations?' The inquiry will stretch into 2026, lasting twice as long as COVID-19 itself, and is projected to cost over £200 million, the most expensive in U.K. history. Leunig is expected to give evidence on the economic interventions at the end of the year. "How much am I going to remember?' he asks. "Memory plays tricks on us.' COVID-19 waste Although his furlough program was credited with saving 4 million jobs, Leunig would be more sparing with handouts now. He would lower the salary limit to 70%, £1,750 in 2020, with a 20% contribution by the employer, replicating Germany's Kurzarbeit upon which furlough was based. In all, he estimates it could have been £10 billion cheaper. Other policies were also flawed, leaving aside the £9.9 billion written-off on personal protective equipment. Altogether, Leunig identifies £50 billion of savings, a quarter of the economic response and about 2% of GDP. He blasts the £30 billion Self-Employment Income Support Scheme, which perversely lifted claimants' income "above pre-pandemic levels' on average, the National Audit Office found. On the fraud-ridden £45 billion small business "bounce back' loan program, "I'm willing to see more firms go to the wall,' he says. There is "a special place in hell for capitalists who undermine capitalism,' he added about big businesses that kept hold of government support even as their sales rose. Perhaps most intriguing is the behavioral impact furlough may have had. Clare Lombardelli, the Bank of England deputy governor, has speculated that bailouts may be partly to blame for the weak recovery. The official government analysis is that furlough prevented economic "scarring' by keeping people tied to their jobs, preventing "hysteresis' where the long-term unemployed end up on the scrap heap. However, Jason Furman, former chair of U.S. President Barack Obama's Council of Economic Advisers, argued at a Resolution Foundation think tank event in April that furlough may instead have killed the dynamism that drives growth. "We had much more separation from jobs in the U.S. but productivity was better — and it might have been better because of that separation, not despite that separation,' Furman said. Lombardelli, at the same event, responded: "Does this mean we should rethink hysteresis? I think it does.' Leunig is skeptical but he and Lombardelli agree that too many questions remain unanswered. Lombardelli, a Treasury colleague of Leunig's during COVID-19, called on researchers to look into the furlough conundrum. Leunig wants clarity on how best to tackle the next pandemic. For many, the pandemic's legacy is personal. But it is personal economically, too, in the damage to living standards and public services. Leunig is impatient for answers. "The inquiry seems too parochial,' he says, "and it's taking forever.'
The Guardian
20-03-2025
- Business
- The Guardian
How Covid changed the British state
At 9.26am on Wednesday 18 March 2020, Tim Leunig was cycling to Wimbledon station when he got a text from his boss, Rishi Sunak, urging him to work 'at pace', on a scheme to protect UK workers from the looming Covid lockdown. For the rest of his commute, the economist mulled over what he knew about the furlough schemes that existed in Germany and the US, to protect workers during temporary shutdowns. When Leunig arrived at the Treasury, where he worked as an adviser, senior officials agreed that this was the right approach. By noon, they were pitching the Coronavirus Job Retention Scheme to the chancellor (Leunig admits he is envious of the name the Australians came up with for their equivalent: Jobkeeper). 'That was the most useful two hours, 34 minutes of my life,' he recalls. Furlough, as it became known, was signed off by Sunak within the hour, and announced two days later, after consultation with unions and business groups. The policy marked a radical – if temporary – shift in the role of the state, as the Treasury stepped in to underwrite the salaries of millions of citizens whose jobs could otherwise have disappeared. The scheme went on to cost £70bn. Agreed by a chancellor who would have much preferred to be slashing taxes and shrinking the state, furlough is perhaps the clearest example of the way the rules were ripped up in that period – often necessarily, but with long-lasting consequences. As one Treasury adviser said later, as ministers tried to wind up various costly support schemes: 'Covid broke maths.' And that is the most direct way in which the travails of the pandemic period are still felt today – through their impact on the public finances. Public sector borrowing hit almost 17% of GDP in 2020-21, the highest level since the second world war, as the government scrambled to gear up the NHS to cope, as well as cushioning the blow for struggling firms and households, by increasing universal credit by £20 a week, for example. As in many other economies, the result was that public sector debt soared. In the UK, the cost of the bank bailout and a deep recession in 2008, followed by a decade of sluggish growth, had already caused public debt as a share of GDP to climb from a low of 27% of GDP in 2000, to 84% on the eve of the pandemic. As the costs of fighting Covid hit home, it soared to almost 110% of GDP by 2023 – the highest level since the 1950s, when the UK was still working off the legacy of six years of debilitating conflict in the second world war. It remains close to 100%. Many of the key tax and spending decisions made in the past four years, starting with Sunak's 6p increase in the corporation tax rate in the 2021 budget, have been about trying to put the public finances back on an even keel. 'The big point is that the pandemic added £400bn to the debt, possibly more if the economy is still smaller than it otherwise would it have been,' says Paul Johnson, the director of the Institute for Fiscal Studies (IFS). 'That is actually one of the things that's creating huge problems for the public finances. We're now spending more than £100bn a year on debt interest, and that's twice what it was pre-Covid.' One former senior Tory adviser, in government during the pandemic, says it is striking how little Covid now figures in the public debate about tax and spend, however. 'It's crazy: there's a really powerful and actually true argument which is: we had to do loads of stuff during Covid and now we're having to pay for it – but it's like we've gone through a trauma that no one really wants to talk about, and if we don't talk about it we can pretend it didn't happen.' Separate from the impact on the public finances is the direct, long-term effect of the pandemic on public services, many of which are still working through the practical consequences. For the NHS, that means the well documented struggle to deal with waiting lists, which surged as hospitals reorientated towards treating the virus and the public stayed at home. It also means the challenge of trying to support the many thousands of people still experiencing the symptoms of long Covid – very likely to be one driver behind the surge in people unable to work. And there are myriad more subtle ongoing impacts, too, which are harder to measure – such as the dark shadow cast by the psychological impact of the anxiety and grief that accompanied the deadly outbreak. IFS research published earlier this month collated evidence to show that the mental health of the UK population appears to have declined since the pandemic. It included the grim fact that there were 3,700, or 24%, more 'deaths of despair' – from suicide, drugs or alcohol – among working age people in 2023, than there were on average in the five years pre-Covid. The prevalence of mental health conditions was already rising before the pandemic, and we may have become better at acknowledging and diagnosing them; but a full 36% more people were in touch with mental health services last year, than five years earlier. The economist and former Labour adviser James Meadway argues, 'the thing with Covid is that it accelerated us along a demographic curve: the transition to everyone being a bit older and a bit sicker than they were'. For these and other reasons, including the cost of supporting working age adults unable to take up employment, public spending as a share of GDP, a proxy for the size of the state, has not returned to its pre-Covid level. There is potentially a more subtle and diffuse impact on public services, too, which comes through a shift in public expectations about what government can and should do. Leunig argues that the large-scale intervention in the energy market made by Liz Truss's government, protecting even the wealthiest households from the full force of the price rise that resulted from Russia's invasion of Ukraine, at a cost of £23bn, would not have happened without the precedent of Covid. 'I think what we've done is, we've now created an expectation that when something happens to the whole of the nation that is genuinely unexpected, the government will step in,' he says. 'The government is, if you like, the insurer of last resort.' Several former government figures also point to the fact the pandemic galvanised rapid change in key policy areas – from rough sleeping, to introducing online GP appointments. Some aspects of this transformative way of working stuck; many didn't. One thing that did not emerge was a determination to tackle many of the deep-seated challenges exposed by the pandemic. These include the fragmented and overstretched state of social care, for example, which was laid bare by the prevalence of deaths in the sector, despite Matt Hancock's claim to have thrown a 'protective ring' around care home residents. Boris Johnson had already promised to 'fix' social care, and after the spotlight was thrown on it by the pandemic, announced a 2p levy on national insurance in 2021, to pump more funding into the sector (and protect families' inheritances). But the policy was scrapped by Truss, and the Labour government has opted to commission a review, apparently with hopes of constructing a cross-party consensus on the way forward. Similarly, the £20 a week uplift in universal credit introduced during the crisis appeared to be an acknowledgment that the usual rate was too little to live on – but it was scrapped in autumn 2021, as Sunak began the work of patching up the public finances. Survey evidence reported in a recent report from the thinktank Demos, about 'social capital' – the connections between individuals that help make economies work better – suggested levels of trust rose during and after the pandemic, as neighbours helped each other out, and thousands of people clapped for the NHS from the doorsteps. But the idea that a new spirit of collectivism had been kindled, that could lead to a remaking of the social contract, in the spirit of the Beveridge report, published in the depths of war in 1942, did not survive the UK's emergence from lockdown. 'None of that really lasted,' says Meadway. 'There was all this talk of, 'the government can do lots of things, and we can think very differently about the welfare state'. And none of it really happened.'
