COVID-19: Weekly Economy Summary – 4 February

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

It has been reported that proposals to support the economic recovery will be published in the week of 22 February, alongside a ‘road map’ out of the current Covid-19 lockdown in England.

In a letter to business secretary Kwasi Kwarteng, the Confederation of British Industry (CBI) warned that the current lack of clarity for businesses is hindering investment. CBI has called for more details from the Government on which sectors will be allowed to reopen first and how any new tier system will work, to enable them to plan ahead. Running alongside the roadmap, CBI argued there must be clear parameters for determining what, and for how long, economic support measures remain in place. On this, the trade group UKHospitality is urging the Government to extend the current VAT cut for the hospitality sector for another 12 months, alongside a business rates holiday for 2021-22.

Rishi Sunak has been warned by the leaders of Britain’s most influential business groups and the trade union movement that he risks plunging Britain into a period of mass unemployment unless he extends the furlough scheme.

Before the upcoming budget on 3 March, both sides of industry told the Chancellor that the economy was too fragile to end the wage subsidy scheme at the end of April and that he risked undoing the efforts to protect jobs over the past year if he did so. Frances O’Grady, the TUC general secretary, said Sunak should announce immediately that furlough would remain in place until the end of the year. The British Chambers of Commerce also called for an extension. It warned that the planned phased relaxation of lockdown restrictions does not mean that the problems of business are at an end.

Last Friday marked the deadline for applications to the third phase of the Self-Employed Income Support Scheme (SEISS). The Labour Party suggests that 2.4m self-employed people who rely on the SEISS scheme will be ‘left in the dark’ for weeks, with no announcement on the fourth grant due until the Chancellor’s 3 March Budget.

Bridget Phillipson MP, Labour’s Shadow Chief Secretary to the Treasury said that ‘leaving entrepreneurs in the dark about future support risks pushing even more out of business – and that will damage our recovery’. Labour also called on the Chancellor to open his support scheme for the self-employed to the 200,000 people who only have a 2019/20 tax return.

The APPG on Poverty released its report on the impact on poverty of not keeping the £20 uplift in Universal Credit and working tax credits, and of not extending the uplift to legacy and related benefits. The report references modelling carried out by Policy in Practice which found that if the uplift was withdrawn, 683,000 households, including 824,000 children, would no longer be able to afford to meet their essential needs. This number grows by 11% when the impact of the two-child limit is taken into account.

Research by Save the Children indicates that parents who received the uplift predominantly spent the money on essentials such as food, rents and bills, and items for home schooling. The APPG received multiple submissions calling for the extension of the uplift to legacy and related benefits. This was particularly pertinent as most people claiming legacy and related benefits are disabled, carers or have a long-term illness – the majority of whom fall in the poorest 10% of the population.

Similarly, according to a report by the Trussell Trust, nearly a quarter of a million parents who receive Universal Credit say they would be likely to cut back on food for their children if the £20 uplift to the benefit is removed. Over 40% of people who receive the benefit, around 2.4 million people across the UK, would be likely to cut back on food for themselves, the report reveals, and the charity forecasts a rise in the need for food banks if the £20 uplift is removed. It recommends maintaining the uplift and extending it to legacy benefits.