Economics

Extend sick pay, increase benefits and pay company wage bills – now

BY Mike Brewer   /  19 March 2020

The  coronavirus health crisis is now a full-blown economic crisis, with people losing jobs and firms going bust already.

And the situation is changing fast, with the medical advice already different from when Chancellor Rishi Sunak delivered his Budget, only a week ago.

It is now clear that the majority of the economic damage will be driven not by people missing work because they are ill, but by the sensible measures that we have rightly put in place to respond to the virus. Self-isolating a whole household when one person gets ill, social distancing, and having parents stay at home because schools are shut, all mean that a large chunk of economic activity just isn’t happening. And that economic activity is what supported firms’ profits and people’s livelihoods.

The help for firms announced in the Budget and since is welcome and important. But we need much bolder steps to support family incomes. This is crucial not only to avoid hardship, but also to reduce the depth of the crisis by reassuring families that their incomes won’t simply disappear. We have three concrete proposals that the government could take now.

First, extend statutory sick pay (SSP) to the two million low-paid who don’t earn enough to qualify. However, even with SSP, workers who fall ill or self-isolate and don’t get top-ups from their employer face a severe income shock –SSP is just £95 a week. Raising it to £160 a week would mean that workers lose “only” half of their earnings, on average. In line with the Budget changes, all costs for small and medium employers would be covered by the state.

Second, we need additional support for the many workers in affected sectors who face the prospect of having no work to do in the coming months, as well as those unable to work now that schools are closed. The key is to prevent these workers from joining the dole queues, becoming detached from their employer who may need them in a few months’ time. So we propose a new Statutory Retention Pay scheme, modelled on Statutory Maternity Pay, so that workers stay on the books and can continue to get paid two-thirds of their wages via payroll, with the state compensating firms.

But job losses are inevitable – and many more people will require the support of our social security safety net. It must be made significantly more generous because  unemployment benefits are worth no more today than they were in the early 1990s, despite the economy having grown by 75 per cent since then.

So, third, we need an immediate uplift to our core unemployment benefits – Jobseekers Allowance, Employment and Support Allowance and Universal Credit – of around a third to £100 a week. This will also help those still in work but whose hours have been cut, and the self-employed, who can’t get SSP. Wider benefits should also be uprated.

This amounts to a comprehensive £22 billion package to support firms and families through the tough coming months. Crucially, they mean our economy will be better prepared to jump back up when the public health emergency abates. Yes, there are rough edges and not everything will be easy, but time is not on our side: we need to move fast, using the tools we have. Over to you, Rishi.

Mike Brewer is Chief Economist and the Deputy Chief Executive of the Resolution Foundation, where he oversees all aspects of the Foundation’s research agenda. He tweets at @MikeBrewerEcon.

The Resolution Foundation’s report “Doing what it takes – Protecting firms and families from the economic impact of coronavirus” can be read in full here


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