COVID-19: Weekly Economy Summary – 25 February

The Economy Summary is part of our Weekly COVID-19 Bulletin, sent every Thursday. You can sign up to receive your copy here.

The rate of unemployment in the UK rose to 5.1% in the three months to December, official figures showed this week. The Office for National Statistics (ONS) said 1.74m people were unemployed in the October to December period, up 454,000 from the same quarter in 2019. The figures show 726,000 fewer people are currently in payrolled employment than before the start of the pandemic, almost three-fifths of this fall, 425,000, has come from those aged under-25.

A report from the National Institute of Economic and Social Research has shown an explosion in the number of people ‘living in destitution’, putting pressure on Chancellor Rishi Sunak not to abandon support schemes in next month’s budget.

The report has shown the total has risen from 197,400 to 421,500 households in 2020, suggesting the crisis would worsen if the Chancellor ends the furlough scheme or cuts Universal Credit. It also showed stark regional disparities and warned the official unemployment statistics are failing to reflect reality.

‘As a result of lockdowns, levels of destitution seem to be rising across the country,’ Professor Jagjit Chadha, the NIESR’s director commented. He added: ‘The kind of unemployment numbers we’ve currently got seem to be underreporting the true level of unemployment. Given the level of activity we’ve had in the economy – the extent to which it’s fallen – unemployment could rise to at least 8% or 9%, or even further.’

Looking ahead to the Budget on 3 March, Keir Starmer has called for the introduction of Covid recovery bonds, which could raise billions of pounds for the National Infrastructure Bank and would give financial security to millions, many of whom have saved for the first time. Keir Starmer also explained how he would directly help to create 100,000 small businesses across the country over the next five years by boosting funding for start-up loans.

During the Labour party’s first opposition day debate this week, Shadow Chancellor Anneliese Dodds demanded U-turns on the planned cut to Universal Credit, the council tax hike being forced on councils and the public sector pay freeze.

During the second opposition day debate, Labour’s Shadow Chief Secretary to the Treasury Bridget Phillipson, called on the Government to support businesses and individuals still struggling as a result of the coronavirus crisis in the forthcoming budget by:

• Extending business rates relief for at least another six months
• Extending the temporary 5% reduced rate of VAT for three months after restrictions are lifted or for another six months, whichever is later
• Helping British businesses struggling under the burden of Government-guaranteed debt by ensuring that small businesses can defer paying loans back until they are growing again
• Extending and reforming the furlough scheme so that it lasts while restrictions are in place and demand is significantly reduced
• Immediately confirming that the fourth Self-Employment Income Support Scheme grant will be set at 80% of pre-coronavirus crisis profits
• Extending eligibility to that scheme to include anyone with a 2019-20 tax return and fixing the gaps in coronavirus support schemes to support those who have been excluded from the beginning of the crisis

The Resolution Foundation think tank published new research that calls for a £100bn Budget package to boost Britain’s economic recovery from the impact of the coronavirus pandemic. The think tank says that Chancellor Rishi Sunak should combine a £30bn extension of emergency COVID-19 support with £70bn in additional stimulus in order to kickstart the economy’s recovery, and calls for a series of measures including a retraining and job support package, extending Universal Credit, an £18bn green investment scheme, and a £9bn voucher scheme focused on supporting Britain’s high streets and retailers.