U.K. Extends Covid-19 Support to Businesses for Six Months -- Update
September 24 2020 - 12:29PM
Dow Jones News
By Paul Hannon
LONDON -- The British government reversed course and joined
other European countries in offering extended help to businesses in
the face of a new surge in coronavirus cases.
The announcement follows the imposition this week of a new set
of restrictions on the U.K. economy because of the rise in Covid-19
cases, which has led some forecasters to predict a further downturn
in the economy later this year.
Britain has already suffered the highest death toll of any
European country, and the size of its economic contraction in the
three months through June was more than double that of the U.S. and
exceeded only by Peru and India.
After resisting an extension of support for businesses beyond
the end of next month, the government shifted course on Thursday to
give an additional six months of support for firms that can't offer
full-time work to their staff.
"Back in March, we hoped we were facing a temporary period of
disruption, " said Rishi Sunak, the government's Treasury chief.
"It is now clear that for at least six months the virus and
restrictions are going to be a fact of our lives."
In joining other European governments in lengthening the support
period of businesses, the government changed the approach of its
previous furlough program. Instead of covering as much as 80% of
wages for workers who had been idled, the new program will now
cover two-thirds of the wages lost by workers who are working at
least a third of their normal hours.
The wage-subsidy program, which mimics job-support measures in
Germany and other European countries, should cost the treasury less
than the furlough program and is aimed at supporting jobs that are
viable over the longer term. Economists had said the earlier
program -- which is set to cost GBP47 billion, equivalent to $60
billion -- was keeping some people in "zombie" jobs with no
long-term future in the post-coronavirus economy.
Mr. Sunak estimated that the new job scheme would cost GBP300
million a month for every million workers who are covered. But even
with that help in place, he acknowledged that unemployment would
continue to rise. "I can't save every job," he said.
Mr. Sunak announced the extension to lawmakers, having canceled
plans to present a longer-term program for fixing the government's
finances in November, citing the uncertainty caused by the
pandemic.
The new package, which included an extension of cuts to the
sales tax, is a response to a darkening economic outlook, which
will be complicated by the U.K.'s transition to new rules in its
trade with the European Union from January.
"We know the coming months are going to be tricky," he told
reporters. "If you're asking me if I'm ready to do more as the
situation evolves, of course I am."
The U.S. government has spent hundreds of billions of dollars on
loans for struggling businesses and enhanced benefits for laid-off
workers during the pandemic. European governments, by contrast,
have largely sought to encourage companies to keep people on the
payroll even when they have little or no work to do.
Their job-retention programs -- which have already cost tens of
billions of dollars -- typically involve payments to companies of
most of the wages of idled workers, if those companies can show
their revenues have fallen significantly.
Many of those measures were launched as economies were locked
down in April, and were only intended to last for between three and
six months. But most have been extended as it has become clear that
the pandemic will cause severe disruption for some businesses and
their workers until a vaccine becomes widely available, a
development that governments hope to see in 2021.
According to a survey by the U.K.'s Office for National
Statistics, 11% of workers were still on furlough in the second
half of August, equivalent to around three million people. By
comparison, the ONS estimates that the U.K. lost just 730,000 jobs
between March and July. Economists warned that ending government
support could lead to the loss of almost 2 million jobs. The
Confederation of British Industry, which represents 190,00 U.K.
businesses, said the extension would "save hundreds of thousands of
viable jobs this winter."
In Germany, Europe's largest economy, the share of workers being
supported by the government's short-term program fell to 14% in
August from 17% in July.
One consequence of Europe's furlough programs is that official
measures of unemployment have risen only modestly since the
pandemic struck, a contrast with the U.S., where jobless rates have
soared.
Economists at UBS estimate that if the furlough programs hadn't
been in place, the eurozone's unemployment rate would have peaked
at 20% during the second quarter, above the 14.7% reached by the
U.S. in April.
While Europe's furlough programs help keep unemployment down,
some economists and policy workers worry that they may also trap
workers in jobs that don't have a future, and keep businesses
afloat that should go under.
But with new infections rising, few governments appear willing
to step aside and let markets once again decide which businesses
should flourish or fail.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
September 24, 2020 12:14 ET (16:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.