UK announces crisis plan to save jobs from coronavirus

Chancellor of the Exchequer Rishi Sunak announces a plan to rescue millions of jobs and businesses from a winter crisis. PHOTO: AFP

LONDON (BLOOMBERG) - Chancellor of the Exchequer Rishi Sunak set out his plan to rescue millions of jobs and businesses from a winter crisis as the coronavirus pandemic again threatens to derail the British economy.

In an emergency statement to Parliament on Thursday (Sept 24), Britain's finance minister announced:

- A new six-month "Job Support Scheme" programme to subsidise the wages of people in part-time work

- Extended loans for firms hit by Covid restrictions, with extra flexibility in repayments to help one million firms

- A 15 per cent value added tax (VAT) reduction for the hospitality and tourism industries

Mr Sunak painted a bleak picture of the impact of Covid-19, saying the disease and restrictions are likely to last for at least the next six months.

While the Treasury's primary goal remains to protect jobs, he said, the methods of doing so "must evolve".

"Our economy is now likely to undergo a more permanent adjustment," Mr Sunak told the House of Commons.

"I cannot save every business, I cannot save every job. No chancellor could."

BUDGET SCRAPPED

Mr Sunak scrapped his plan for a full-scale budget, in a sign of the disruption and uncertainty the resurgent virus threatens to bring to the country. Prime Minister Boris Johnson imposed fresh curbs on the public earlier this week and warned further measures may be needed in what is likely to be six difficult months ahead.

The centerpiece of Mr Sunak's announcement was a new jobs support programme to succeed the furlough policy that ends on Oct 31 and has supported more then nine million jobs at a cost of £39 billion (S$68 billion) so far.

Under the furlough programme, the government paid people who were unable to return to their workplaces because of Covid restriction up to 80 per cent of their wages.

The new policy instead will pay subsidies to workers who are able to return to their jobs for at least a third of their normal hours. Their employer will pay the hours they work, and the government and employer will each pay a share of wages for the hours they don't work to help top up their earnings.

It means that workers on the new programme will be guaranteed at least 77 per cent of their normal wages.

ADAPT AND EVOLVE

"The sources of our economic growth, and the kinds of jobs we create will adapt and evolve to the new normal," Mr Sunak said.

For businesses such as pubs and restaurants - which are required to close at 10pm from Thursday - the need for extra help from the state is urgent, with millions of workers at risk of losing their livelihoods if the crisis worsens. Mr Sunak extended a VAT cut for the industry that was due to end on Jan 12 until the end of March.

Mr Sunak's measures aim to prevent a gradual increase in job losses from snowballing into a crisis comparable to Mrs Margaret Thatcher's time as premier, when unemployment climbed to almost 3.3 million as the economy went through a painful overhaul. His actions will likely be followed by the Bank of England, which is widely anticipated to deploy another round of monetary stimulus as early as November.

Economists expect the latest restrictions on businesses to damage the economic rebound. If the government goes further and imposes blanket lockdown restrictions for two weeks at the start of October, output would shrink 3.9 per cent in the fourth quarter, according to Bloomberg Economics.

Mr Sunak and Mr Johnson are trying to strike a balance between getting Covid-19 under control and keeping enough of the economy open to avoid damaging mass redundancies. The first peak of the disease earlier this year hit the UK with the highest death toll in Europe and the country's deepest recession in more than a century.

Mr Johnson's government has faced mounting criticism over its public health response to the outbreak and is under political pressure to do more to help avoid an economic nightmare as the disease spreads rapidly again.

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