When the time comes that the nation can look beyond tomorrow and we consider hauling the economy back up the cliff over which it was thrown in March 2020, we may discover that mass unemployment is one of the trickiest problems to solve.
Granted, there is plenty vying for attention. The Office for Budget Responsibility predicts a fall in GDP of around 12 per cent in 2020, the equivalent of having the 2008-09 recession twice in one year. In July, total government debt topped the £2 trillion mark for the first time.
If we continue on the current trajectory, sparks will soon be flying off the money printer, and the extremely high growth rates of money now being seen could instigate an inflationary boom. Higher inflation means higher interest rates and suddenly that cheap money being borrowed won’t be so cheap.
But it is the job losses that will shroud the nation in darkness, affecting every major industry, that could be the thorniest issue for the government to resolve once the crisis has passed.
Last week’s ONS labour market figures didn’t look too bad until you realised that the data covered June to August, when the economy was beginning to recover from lockdown and the hours worked were rising sharply. The millions of people on furlough during that period were counted as employed – but it must be doubtful whether they will all have jobs to go back to once the scheme is unwound.
What a difference seven months makes. At the turn of the 2020s we had record levels of employment, low unemployment and an economy that created new jobs all the time. The pattern of labour demand wasn’t frozen by government fiat: over the course of 2017 2,229,555 jobs were lost as businesses closed or reduced headcount – but 2,648,989 new jobs were generated. This was the creative power of private enterprise at work.
Nonetheless, regulation has crept into every corner of business. The list of new, and onerous, burdens on companies is a long one, littered with a bewildering array of costs and obligations. Yet, as with anything, if you make the price of labour more expensive, there will be less of it.
While furlough was the right medicine in the Spring, it dragged on for too long and prevented businesses from making necessary adjustments to their models to meet the needs of future consumers. The problem is that we cannot flick a switch and go back to the same level – or same type – of employment as before: we may need fewer flights or cafes or theatres than before. Yet it is a very real cause for concern that the current crisis could be used as an excuse for the permanent expansion of the state accompanied by increased taxation, which risks damaging the recovery and acting as a long-term drag on the economy.
Already, the government now appears to favour using its spending power in an attempt to stimulate new employment. A “Kickstart” scheme has been proposed to provide 350,000 new jobs for 16-24 year olds claiming Universal Credit at a cost of £2bn. A Job Entry Targeted Scheme – which will see the appointment of 13,000 “work coaches” – will come with a £238m price tag.
But there is another way. A recent report from the Institute of Economic Affairs makes the case for relaxing regulation and allowing the private sector to drive the jobs recovery. Rather than go down the route of a British “New Deal,” one that would entail this sort of extensive government spending and increasing interference in the UK labour market, the author suggests we build on the policies that have brought Britain success in the past: lower taxes and fewer regulations.
It suggests scrapping much occupational licensing, reforming minimum wages, ending the Apprenticeship Levy and unpicking other types of employment regulation that serve to choke the labour market. After all, why has government reach needed to spread to new groups such as estate agents and security guards, all of which have been regulated in the last decade? Is the impact of minimum wage hikes on joblessness being overlooked? Why the commitment to provide guaranteed apprenticeships, when no government in the last four decades has made a success of them?
Talking about our economic recovery feels a little like assessing hurricane damage before the eye of the storm hits land. But, given there is nothing more permanent than a temporary government programme, it is entirely relevant to point out that an ongoing increase in government intervention and public spending will stunt our bounce back, and to make the case for liberalising markets and allowing them to operate freely when we do eventually emerge from the most draconian restrictions on our civil liberties yet seen in peacetime.
Annabel Denham is Director of Communications at the Institute for Economic Affairs.