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Chancellor’s stock peaks with ‘nudge’ summer statement

8 July 2020 | Finance

The Covid-19 crisis has been good for Rishi Sunak’s reputation. While other cabinet members have floundered around, the chancellor has won plaudits for his handling of the economy during its pandemic-enforced lockdown.

That’s not entirely surprising because Sunak’s main job for the past few months has been to shower Britain with cash. Yes, he has faced pressure from those that have not been benefited from the state’s largesse – freelancers and some self-employed workers, for example – but the chancellor’s stock has risen.

Judging by the reaction to his mini budget on Wednesday, Sunak’s share price has peaked. But for the first time in his brief spell running the Treasury, the chancellor has come in for some flak. To be sure, there was a welcome for some of the measures, but there was also an undercurrent of unease that the package as a whole was insufficiently bold given the threat to jobs in the coming months.

Take the response from Carolyn Fairbairn, the director general of the employers’ organisation, the CBI. Fairbairn said just as the challenge in the spring had been to flatten the infection curve so the task now was to flatten the unemployment curve. Her welcome for the chancellor’s job creation measures came with a “but” attached.

“Many viable firms are facing maximum jeopardy right now”, she said. “The job retention bonus will help firms protect jobs. But with nearly 70% of firms running low on cash, and three in four reporting lack of demand, more immediate direct support for firms, from grants to further business rates relief, is still urgently needed.”

Sunak seems to have taken his inspiration from nudge theory, a branch of economics that has been all the rage in recent years. The idea is that small decisions by governments can result in big changes in consumer behaviour, or in this case that people nervous about going out for a pizza can be persuaded to do so with a big shove.

The most nudge-like of all the measures was Sunak’s “eat out to help out” scheme, which gives anybody eating out between Monday and Wednesday in August 50% off their bill up to a maximum of £10 per head.

Whether this proposal will be enough to lure people out to cafes and restaurants remains to be seen. Neil Wilson, an analyst at the financial trading platform Markets.com, described it as the “kind of back-of-fag-packet policy idea dreamt up on the hoof by Ollie Reeder in The Thick of It”. Anti-poverty campaigners said the £500m cost of the scheme would be better spent boosting welfare payments so that poor families could put food on the table.

A more substantial measure was the decision to cut VAT for businesses in the hospitality and tourism sectors from 20% to 5% until March. Again, the plan is to provide an incentive for households to go out and spend rather than save over the coming months. Worryingly for the government’s hopes of a V-shaped economic recovery, the expected rush to the pub after last week’s reopening in England failed to materialise.

Given that the chancellor has made the VAT cut time limited, there is a risk that spending will fall sharply when prices go back up next spring. This, though, is a gamble Sunak thinks is worth taking. The hope is that the economy will be through the worst by early 2021 and that the hospitality and tourism sectors will be able to cope by then.

It is the next few months, the period when the furlough scheme is being wound down, that is critical. The evidence from other countries is that many see an initial burst in activity as lockdown restrictions are eased but the economy then enters a second phase when the recovery slows down.

The UK is about to enter this period, and the justifiable fear of the government is that businesses will start to lay off staff in large numbers between now and the end of the furlough scheme in October. Sunak has resisted calls to extend the furlough scheme or make it sector specific, but instead is offering businesses a £1,000 job retention bonus for every worker kept on until January.

Here, the issue is one of scale. Since the lockdown began businesses have been receiving up to £2,500 a month in wage subsidy per employee furloughed. For many of them a £1,000 bonus will simply not cut it.


Major UK job cuts announced so far

The coronavirus lockdown has prompted some of the UK’s most prominent companies to announce large-scale job losses. The aviation, automotive and retail sectors have been among the worst hit, as businesses adjust to dramatically reduced revenue projections.

While the government’s job retention scheme has so far protected millions of jobs, fears are mounting that unemployment will rise as the scheme begins to be phased out from August.

Since lockdown began on 23 March, some of the UK’s largest companies have announced plans to cut a total of 60,000 jobs globally, many of which will fall in the UK.

Rolls-Royce – 9,000 jobs
The jet-engine manufacturer has confirmed that 3,000 job cuts, of a planned 9,000 worldwide, will be made in the UK. In May Rolls-Royce said it would make the first round of redundancies through a voluntary programme, with about 1,500 posts being lost at its headquarters in Derby, as well as 700 redundancies in Inchinnan, near Glasgow, another 200 at its Barnoldswick site in Lancashire, and 175 in Solihull, Warwickshire.

BP- 10,000 jobs
The oil company said in June it plans to make 10,000 people redundant worldwide, including an estimated 2,000 in the UK, by the end of the year. The BP chief executive, Bernard Looney, said that the majority of people affected would be those in office-based jobs, including at the most senior levels. BP said it would reduce the number of group leaders by a third, and protect the “frontline” of the company, in its operations.

Centrica- 5,000 jobs
The owner of British Gas announced in June that it intends to cut 5,000 jobs, mostly senior roles, and remove three layers of management, in a bid to simplify the structure of its business. The energy firm has a total workforce of 27,000, of whom 20,000 are in the UK.

Bentley- 1,000 jobs
The luxury carmaker intends to shrink its workforce by almost a quarter, slashing 1,000 roles through a voluntary redundancy scheme. The majority of Bentley’s 4,200 workers are based in Crewe in Cheshire.

Aston Martin Lagonda – 500 jobs
The Warwickshire-based luxury car manufacturer has announced 500 redundancies.

British Airways – 12,000 jobs
The UK flag carrier is holding consultations to make up to 12,000 of its staff redundant, a reduction of one in four jobs at the airline. BA intends to cut roles among its cabin crew, pilots and ground staff, while significantly reducing its operations at Gatwick airport.

Virgin Atlantic – 3,000-plus jobs
Richard Branson’s airline is to cut more than 3,000 jobs, more than a third of its workforce, and will shut its operations at Gatwick.

EasyJet – 4,500 jobs
The airline has announced plans to cut 4,500 employees, or 30% of its workforce.

Ryanair – 3,000 jobs
The Irish airline intends to slash 3,000 roles and reduce staff pay by up to a fifth.

Aer Lingus – 900 jobs
The Irish airline, part of International Airlines Group (IAG) plans to cut 900 jobs.

P&O Ferries – 1,100 jobs
The shipping firm intends to cut more than a quarter of its workforce, a loss of 1,100 jobs. The company, which operates passenger ferries between Dover and Calais, and across the Irish Sea, as well as Hull to Rotterdam and Zeebrugge, will initially offer employees voluntary redundancy.

JCB – 950 jobs
Digger maker JCB said in May up to 950 jobs are at risk after demand for its machines halved due to the coronavirus shutdown.

Ovo Energy – 2,600 jobs
Britain’s second biggest energy supplier announced in May it planned to cut 2,600 jobs and close offices after the lockdown saw more of its customer service move online.

Johnson Matthey – 2,500 jobs
The chemicals company said in June it is planning to make 2,500 redundancies worldwide over the next three years. The move will affect 17% of the workforce at the firm, which is a major supplier of material for catalytic converters.

Bombardier – 600 jobs
The Canadian plane maker will cut 600 jobs in Northern Ireland, as part of 2,500 redundancies announced in June.

The Restaurant Group – 1,500 jobs
The owner of Tex-Mex dining chain Chiquito, and other brands including Wagamama and Frankie & Benny’s, said in March that most branches of Chiquito and all 11 of its Food & Fuel pubs would not reopen after the lockdown, leading to the loss of 1,500 jobs.

Monsoon Accessorize – 345 jobs
The fashion brands were bought out of administration by their founder, Peter Simon, in June, in a deal which saw 35 stores close permanently and led to the loss of 545 jobs.

Clarks – 900 jobs
Clarks plans to cut 900 office jobs worldwide as part of a wider turnaround strategy

Oasis and Warehouse – 1,800 jobs
The fashion brands were bought out of administration by restructuring firm Hilco in April, in a deal which led to the permanently closure of all of their stores and the loss of more than 1,800 jobs.

Debenhams – 4,000 jobs
At least 4,000 jobs will be lost at Debenhams as a result of restructuring, following its collapse into administration in April, for the second time in a year.

Mulberry – 470 jobs
The luxury fashion and accessories brand said in June it is to cut 25% of its global workforce and has started a consultation with the 470 staff at risk.

Jaguar Land Rover – 1,100 jobs
The car firm is to cut 1,100 contract workers at manufacturing plants the UK, potentially affecting factories at Halewood on Merseyside and Solihull and Castle Bromwich in the West Midlands.

Travis Perkins – 2,500 jobs
The builders’ merchant is cutting 2,500 jobs in the UK, accounting for almost a 10th of its 30,000-strong workforce. The company, which is behind DIY retailer Wickes and Toolstation, said the job losses will affect staff in areas including distribution, administrative roles and sales. The move will also affect staff across 165 stores that are now earmarked for closure.

Swissport – 4,500 jobs
Swissport, which handles services such as passenger baggage and cargo for airlines has began a consultation process that is expected to result in 4,556 workers being made redundant, more than half of its 8,500 UK workforce.

Royal Mail – 2,000 jobs
Royal Mail has announced a cost-cutting plan that will involve slashing about 2,000 jobs. One in five of its near-10,000 management roles will go by March 2021, in areas including IT, finance, marketing and sales. The company’s 90,000 postal workers would not be affected by the cuts.

SSP Group – 5,000 jobs
The owner of Upper Crust and Caffè Ritazza is to axe 5,000 jobs, which represents about half of its workforce. The cuts will have an impact on staff at its head office and across its UK operations. It follows a dramatic fall in domestic and international travel, which has hit the company’s sites based at railway stations and airports.

Accenture – 900 jobs 
The consultancy firm is reduces costs in the face of lower demand for its services. The New York-listed company employs 11,000 people in offices across the UK including in Aberdeen, London and Cambridge. The UK job cuts will be at all levels, including managing directors, and across all parts of the business.

Harrods – 700 jobs
The department store group is cutting one in seven of its 4,800 employees due to the “ongoing impacts” of the pandemic. The Harrods chief executive, Michael Ward, blamed the cuts on social distancing and a lack of tourists.

Airbus – 1,700 jobs
The European planemaker announced plans this week to cut 1,700 jobs in the UK as it warned the coronavirus pandemic had triggered the “gravest crisis” in its history.

Photograph: Bloomberg

Fighting a pandemic does not come cheap. There were no official forecasts yesterday but the government is on course to borrow around £350bn this year. That figure may well rise. If, as seems entirely possible, unemployment rises sharply in the months ahead, there will be more stimulus in Sunak’s autumn budget.

The chancellor thinks it would be more expensive to have mass unemployment than to support the economy and he is right about that. It might take more than £30bn to do the trick, that’s all.

This post has originally been featured in Guardian.