Yesterday, I had my first experience of the government’s ‘Eat Out to Help Out’ scheme. On my way to the station I wandered into a Pret a Manger to buy some lunch, picked up a sandwich, went to the till to pay and – just as I was pulling my card out of my bag – was informed that my lunch would be effectively free due to a £10 subsidy from the government.
I didn’t need this subsidy – I am lucky enough to have a job and a stable income. It didn’t change my behaviour whatsoever, I didn’t even realise that I was going to benefit from it until I reached the till. And it doesn’t seem to have helped the community, rather than being focused on independent local businesses, the government will be providing millions of pounds worth of subsidies to large international chains.
The food and drink, hospitality and retail sectors were severely impacted by the lockdown and social distancing measures that were introduced to curb the Covid-19 pandemic. The slowdown in these sectors has had a significant impact on the UK’s service-driven economy. Now, with unemployment rising and fewer people eating out or shopping for fear of contracting the virus, the negative impact on earnings looks set to continue for many months.
But many of the most established businesses in these sectors are part of large, multinational organisations that were always going to survive the pandemic relatively unscathed. Many others might have struggled, but have benefitted substantially from the government’s furlough scheme, cheap loans subsidised by the Treasury, and extremely loose monetary policy pursued by the Bank of England (which has driven down the cost of corporate debt servicing).
In this context, why is the government offering indiscriminate subsidies to large multinational companies? It could have targeted the scheme to support the small businesses most at risk from the downturn. Or it could have attached conditions to the scheme, such as requiring firms to retain staff, support other local businesses through their supply chains, or implement measures to improve environmental sustainability.
Instead, we have Eat Out to Help Out, bounceback loans and the Jobs Retention Bonus – the latter of which provides businesses who keep furloughed workers on until January with a £1,000 giveaway. Together, these schemes are not likely to significantly reduce unemployment. Nor, on their own, will they save many firms from bankruptcy. Instead, they’ll simply boost the profits of companies likely to survive the pandemic anyway, leaving working people to foot the bill.
The Jobs Retention Bonus is a case in point. Research from NIESR suggests that the bonus will cost almost as much as extending the furlough scheme, but it is unlikely to have a significant impact on employment – the government is simply throwing cash at firms that were likely to keep staff on anyway. A friend of mine who works for a large multinational retail company, and who was furloughed for just a few weeks, has informed me that her company will be receiving the bonus even though they were never going to let her go in the first place.
Other workers won’t be so lucky. In the context of such massive uncertainty, and with some estimates suggesting the UK economy will contract by 11.5% in 2020, firms in sectors like retail and hospitality, where wages constitute by far the highest costs, are likely to lay many workers off. The alternative will be to keep staff on the payroll but substantially reduce their hours, an option made much easier by the precarious working conditions that predominate in these sectors.
The bounceback loan scheme is also beset with problems. Many of the UK’s small and medium sized businesses were already saddled with debt before the pandemic hit – the legacy of a decade of low interest rates and stagnant growth. The extra debt they have been forced to take on since will be unmanageable for many once government support comes to an end. The banks managing the scheme have informed the government that between 40-50% of those in receipt of the loans will default when the it ends.
If Rishi Sunak’s sole aim when responding to the pandemic was to be depicted as a superhero by The Times and the BBC, then he has been phenomenally successful. Up until a few months ago, Sunak was a little-known junior minister – now he could be on track to become the next leader of the Conservative Party. Perhaps the scheme should be called Eat Out to Help Out Rishi Sunak’s Leadership Campaign.
But when it comes to protecting jobs, incomes and investment, his record has been much less impressive. The emergency measures put in place earlier this year – under significant pressure from major unions – undoubtedly saved the UK from a deeper economic crisis. But we are far from out of the woods yet.
As I have warned in previous columns, things are going to get worse for the UK economy before they get better. By the end of the year, unemployment could reach 12% – a level not seen for decades. Indiscriminately throwing money at large corporations while subjecting workers, the unemployed and small businesses to chaos for the forseeable future is hardly the stuff of men in capes.