Economists warn MPs over ‘really high unemployment’ due to virus
Leading economists have warned ministers that they predict “really high unemployment for the foreseeable future” as a result of the coronavirus pandemic.
Torsten Bell, chief executive of the Resolution Foundation, told ministers at the Government’s Treasury Committee that households should prepare for a “big labour market shock” despite Government measures to protect jobs.
The comments came as a panel of economists answered questions from the committee about the predicted impact of the virus, support measures and where further focus might be needed.
Mr Bell also warned MPs that the “unemployment bounce-back could be slower” than some have predicted.
He said: “I think we will see some spark back in activity as we leave the hard lockdown.
“But in terms of employment growth, the reasons to be nervous are that the sectors which are generally the quickest to bring people back to work are hospitality and retail.
“They were a big part of bringing people back into work in the financial crisis but that won’t be so easy this time.
“We expect really high unemployment for the foreseeable future.
“Next year we will be dealing with unemployment when we thought we would be dealing with record employment and we will debating tax rises over the first half of this decade.”
Paul Johnson, director at the Institute for Fiscal Studies, also told the committee that there are “a lot of gaps” in the state’s coronavirus financial support package.
He said: “Some of these gaps are big. There are possibly as many as two million company owner-managers, 650,000 or so self-employed people who set up since April 2019, 200,000 self-employed earning over £50,000 and others working outside the scheme.
“It was a very broad and rough-and-ready scheme in terms of providing income replacement.”
On Tuesday, the Treasury revealed that Government-backed schemes have paid out £34.9 billion to around 830,000 businesses up and down the country.
By far the most popular were the bounce-back loans, designed to quickly funnel up to £50,000 to small firms, which have seen nearly £24 billion paid to more than 782,000 companies.
However, Giles Wilkes, senior fellow at the Institute for Government, warned that he believed the rapid pace that bounce-back loans were handed out is an “incredible red flag”.
He said: “£20 billion went straight out and there’s talk about absolutely massive bad debts.
“It’s very rare for state money to be drawn out without it meaning something has gone slightly wrong and in this case it must be lack of commercial scrutiny that the commercial sector has had to apply to these loans.
“It’s hard to see how these would be gathered back in.”
Meanwhile, Dr Gemma Tetlow, chief economist at the Institute for Government, said the economy faces “radical uncertainty”, appealing for more clarity from the Government over how the virus is impacting certain sectors.
She said: “The thing the Government could be more transparent about is the spread of the disease and transmission, and what parts of the economy it would therefore be able to open up when.
“While there is uncertainty about disease transmission it could be clearer about how it interprets that to how areas are reopened.”