Assumptions made about the UK’s Covid-19 support packages are starting to unravel. When the Chancellor announced unprecedented spending to tackle the virus, he aimed to keep people in their jobs and mitigate an inevitable economic crash. But unemployment is soaring and the economy is contracting at a rapid pace, with growth figures set to plummet further than they did during the financial crash, and possibly even below that of the Great Depression. Despite the government's measures, the economic effects are being acutely felt – and the Treasury’s coronavirus policies may have spurred on some unwanted activity of another sort.
Today’s analysis from the Resolution Foundation and British Chambers of Commerce finds that the centrepiece of the Chancellor’s virus package – the Job Retention Scheme, which allows firms to be reimbursed by the government for up to 80 per cent of their employees’ salaries – may cost three times more than initial estimates predicted. Rather than the 10 per cent take-up rate the Treasury was expecting, the new figures find 50 per cent of companies are putting the majority of their staff into the scheme, taking the cost up to £40bn for this one policy alone.
The Job Retention Scheme was supposed to be a safety net of last resort, not the go-to option for employers hoping to get the Government to pick up their wage bill. That’s not to say the scheme hasn’t saved jobs – it most certainly has. And its real benefits – keeping people in employment so they can return back to work immediately after the lockdown ends, kick-starting the economy on day one – won’t be seen until the lockdown ends. But these packages didn't come with a price tag and the more we learn about their rollout and uptake, the more expensive they've proven to be.
When the Chancellor laid out his coronavirus support plans, he made clear that Government would do whatever was necessary to help businesses and workers through this time. That will include covering these colossal costs. But spending on Covid-19 is already set to undo the decade-long effort to get the deficit under control. As unforeseen costs come into view, the pathway to financial recovery looks to be an even more difficult one to forge.