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Dr Gerard Lyons is a Senior Fellow at Policy Exchange and co-authored this op-ed and Policy Exchange’s new report, ‘Limiting the Economic Impact of the Covid-19 Virus’, with Dr Graham Gudgin, Warwick Lightfoot, and Jan Zeber.

Rising unemployment threatens a hard brake to the economy and justifies the Chancellor keeping his foot to the floor on the economic policy accelerator.

Unconventional economic policies have been unveiled across the globe in recent weeks, as countries have tried to limit the economic fall-out from the coronavirus. The UK has been among the countries at the forefront of this response, with the Chancellor unveiling a series of major boosts, examined today in a Policy Exchange report, Limiting the Economic Impact of the Covid-19 Virus.

The nature of the shock to the economy – and the subsequent lock-down – means that large swathes of the labour force will see no work and thus receive no direct income during the time of this crisis. Policy Exchange’s economic assessment suggests as many as one in six UK workers are in sectors most exposed to the shutdown and by the collapse in economic demand here and globally. Hence action had to be taken to limit the potential rise in unemployment.

The issue of the self-employed was the most pressing economic problem that had to be addressed ahead of the latest measures. There are five million self-employed, of which 3.5 million are full-time, and 865,00 are in the three most-exposed sectors of distribution, accommodation and catering, and transport.

One recognised strength of the UK economy has been its flexible labour market. This has contributed to the health of the labour market in recent years, with record numbers in work. However, even in good economic times there were challenges, as over two in five workers are in what are termed (perhaps inappropriately) low-skilled jobs that are also low-waged, and have relatively low productivity.

The Government’s welcome response ahead of the crisis has been to reduce taxes for this group, but the need to address low productivity remains. An additional challenge about this type of labour market is now evident in this crisis, with the danger that jobs could be shed quickly.

On Thursday, Rishi Sunak unveiled his fourth round of policy measures. He announced what he called a coherent, coordinated, and comprehensive scheme for the self-employed. The biggest challenge with the latest measures is the delay, as the measures unveiled will take a couple of months to implement, and the strain that this may place on those self-employed who do not have access to income during this time.

Some self-employed people may have to turn to Universal Credit (UC), in which case it becomes an issue as to whether the system has the capacity to cope with those forced to claim. This may require even more resources. Since the UC administration system is facing unprecedented demand, its capacity will need to be greatly increased quickly. Given the scale and urgency of the situation, another way to reduce the need for administrative capacity is to strip back conditions and checks associated with disbursing the payments.

In addition to speed, another issue is the amounts being offered. An option to close this gap may be to use the existing administrative infrastructure to institute a temporary and targeted Coronavirus Bridging Payment (CBP) on top of the UC entitlement, to which any self-employed person of a specific but easily identifiable definition (for example anyone who filed a self-assessment and is not on the PAYE system) would be entitled to.

For others, who for whatever reason are not able to, or unwilling to, turn to the benefit system there may be the need to rely upon greater understanding from their banks in the near-term, in order to cope.

The Government has constructed a coherent and imaginative set of measures that address the employment challenges thrown up by the crisis. It needs to keep the details under review, with a view to tweaking and changing them if necessary, to ensure that individuals and businesses can access them. It needs to identify any complexities and delays that hinder them from working as effective relief measures.

One lesson from previous measures unveiled in recent weeks is that the devil is in the detail. For instance, the generous loans in the Chancellor’s second round of measures proved to be inaccessible to non-investment-grade firms, and that criteria needs to be eased.

Also, despite the generosity of last week’s Job Protection Scheme, it appears that some employers have already laid off staff. Our report recommends that the 80 per cent support level under the scheme be raised to 100 per cent so that no employers have an incentive to lay people off. Since the scheme has been back-dated to March 1, there is a case for the Government to urge employers to take back those already laid off – at the Government’s expense.

Likewise, it may be that the requirements underpinning measures for the self-employed leads to a small cohort who are not covered and who may need help. If this eventuality were to arise, then it would not be a surprise to see the Chancellor unveil further measures to fill any gaps. To his credit, he has been responsive to the ongoing situation.

While these shorter-term challenges that may arise from the delay in access to funds from the latest measures cannot be overlooked, they need to be seen within the context of a very positive approach. The costs may be high, but the steps taken are necessary and the higher the cost, the more the system is working to cope with the supply and demand side shock.

There will also be a longer-term cost of possible tax changes for the self-employed, but for now these are not the issue. Instead, the key thing is to recognise that the UK faces an imminent recession, and the Chancellor is trying to ensure as much of the economy survives it in hibernation, able to recover later this year.

23 comments for: Gerard Lyons: The Chancellor’s wholesale support for employment is welcome, but he must watch the detail

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