Boris Johnson has predicted a “strong, jobs-led recovery” that would defy the pessimists, as ministers become increasingly bullish that a predicted Covid-19 jobs catastrophe can be averted.
Chancellor Rishi Sunak will present his “Budget for jobs” on Wednesday but there are signs that the UK’s effective vaccine rollout could help the economy bounce back without a big new surge in unemployment.
Ministers and officials expect that new unemployment forecasts by the independent Office for Budget Responsibility will be improved. Last July the fiscal watchdog predicted a peak in Covid-related joblessness of 12 per cent — worse than the highest total in the 1980s downturn.
But in November the OBR cut that: its central scenario forecast a peak of 7.5 per cent in the spring. Ministers now believe the jobless total prediction could be cut again, with a peak later in the year when government job support schemes are wound down.
Under last November’s OBR forecasts, the most optimistic scenario did not envisage vaccines being deployed until the spring whereas the first jabs were delivered in December. However the OBR also did not expect the resurgence of the virus over the winter to the extent that has happened.
“I have no doubt that if we get it right, as I’m sure we can, we can have a strong, jobs-led recovery, that I think could be much stronger than many of the pessimists have been saying over the last six months or so,” Johnson said.
With unemployment currently at 5.1 per cent, Sunak wants to make sure that the ending of the furlough scheme — expected in June — does not lead to a sudden sharp rise in people out of work.
The chancellor released a video on Monday — dubbed at Westminster “Rishi: the movie” — in which he declared: “People should be reassured that we are going to continue to be there to support them as we get through this difficult period and emerge, hopefully stronger, on the other side.”
The fiscal watchdog will lower its unemployment forecast partly because of the additional support the government will make available, although the level is still likely to rise as emergency measures are phased out.
Sunak has promised to put in place new “retention incentives” after the furlough scheme ends, aimed at helping sectors struggling to resume normal business after June 21 — the earliest date by which the government hopes to end all Covid-19 restrictions.
The chancellor told the Financial Times last week that it was “a great sadness that 750,000 people have already lost their jobs”, but said government support schemes had saved millions of jobs: “I’m proud of our record on this.”
With a faster rebound and fewer long-term scars forecast for the economy, Sunak will face a smaller bill for future job support measures.
But wage subsidies are only part of the answer. Even if unemployment now peaks at a lower rate than previously feared, there are already some 2m people, many young and at the start of their careers, who have been away from the workplace — whether unemployed or fully furloughed — for more than six months. There has also been a marked rise in the number of people working part time because they cannot find a full-time job.
Sunak’s Budget documents — which carry the strapline “Protecting the jobs and livelihoods of the British people” — also include an extension of subsidies to hire apprentices and funding for traineeships for young people.
With these longer-term effects and deep uncertainty hanging over all of the forecasts, the chancellor asserted at the weekend that he would also use the Budget to “level” with the British people about the need to start restoring order to the public finances. He is expected to raise taxes in spite of improving economic forecasts.