Even Rishi Sunak’s superpowers may not be enough to prevent an economic crash

Linda J. Dodson

“It’s a bit like a car hitting a wall at high speed,” says Peter Dixon, UK economist at Commerzbank. “You will wreck the car and you don’t just walk away.

“There will be lots of scars. A lot of people will lose their jobs, a lot of people will be furloughed and incomes are going to dry up.”

Two months ago Rishi Sunak was a little-known junior minister unwittingly about to be thrown into the centre of a once-in-a-lifetime economic crisis. Now the fate of millions of jobs and thousands of businesses hangs on the success of his mission to stop the economy careering into that high-speed car crash.

Since being appointed on Feb 13, Sunak has been transformed, from a rising star and second-rank Treasury minister to Chancellor and the bookies’ favourite to succeed Boris Johnson as Tory leader. But the impressive 39-year-old is facing his biggest challenge yet: executing the enormous rescue package for the economy.

There are already signs that his plan to save jobs and businesses with a fiscal bazooka could be faltering. “I’m going to be very honest. In spite of our unprecedented measures in scale and scope, I can’t stand here and say I can protect every single job, every single business and every single charity,” Sunak admitted on Wednesday.

Economists and businesses see flaws in his package. Business groups warn that credit is not reaching firms fast enough, and dismal survey data backs that up. Rocketing Universal Credit claims suggest that job losses are piling up and freelance work has virtually vanished. There are warnings of many Britons slipping through the cracks as the self-employed in particular face months of anxious waiting for support.

Reining in expectations of how much he can cushion the impact of a record-breaking plunge in GDP could be the Chancellor’s biggest challenge.

“What the government and central bank have tried to do is put a safety net underneath the economy, but unfortunately they can’t prevent everything going wrong and support everybody at all times,” says Dixon.

Economists say the success of the plan to save jobs will be crucial to mitigating the lasting economic damage of Covid-19. But experts warn that millions have already been lost.

Some 1.2 million people applied for Universal Credit over three weeks, suggesting that unemployment has already surged. Some of the applicants will be self-employed workers whose work has dried up suddenly, rather than employees who have been let go.

The Institute for Employment Studies estimates that between 1.5 million and 2 million jobs have already been shed, in record-breaking losses. The fall is twice as big as the tumble during the financial crisis. And on top of that, workers have been furloughed under the job retention scheme.

Cathal Kennedy, analyst at RBC Capital Markets, describes the job retention scheme as a “finger in the dam” that could cost the Exchequer up to £32bn if it runs for three months. Unemployment data is unlikely to reveal the true blow to the jobs market as furloughed workers will not be counted, he says.

However, Kennedy adds that the scheme should at least mean firms can react more quickly once restrictions are lifted, as they will avoid the process of having to re-hire staff.

Japanese bank Nomura believes the UK is the most vulnerable country to job losses in Europe, ahead of even Italy and Spain, despite the scheme.

A higher proportion of consumer spending, a large service sector and a more flexible labour market makes the UK more exposed, says George Buckley, economist at Nomura. He expects Britain’s jobless rate to more than double to 8.5pc.

There are also doubts about how well the job retention scheme can be executed at such short notice.

Jim Harra, HMRC chief executive, told MPs his service would be overwhelmed if too many businesses applied all at once: “If a million employers all try to ring us on the same day it will not be possible for me to find enough resources to handle all those calls at the same time. I’m sure if we get that level of demand I’ll be asking for people’s patience.”

Jobs can also be saved by stopping firms going to the wall, but businesses have complained of a lack of support from banks when trying to obtain state-backed loans.

Only 1pc of businesses have successfully accessed the Coronavirus Business Interruption Loan Scheme and its loans that are 80pc guaranteed by the Government, according to a survey by the British Chambers of Commerce. A fifth of firms plan on using the scheme. Just 7pc are receiving grants, and almost 60pc of firms have cash reserves that will run out within three months.

Craig Beaumont, director of external affairs at the Federation of Small Businesses, says the schemes to help businesses are about to reach a “crunch point” as they start to kick in.

“All of these schemes are really set to motor over the next few weeks,” he says. “We now need to see large numbers of loans approved, grants distributed and successful applications to the furloughed workers portal.

“If those numbers don’t rise, I think we need changes to the scheme.”

The Commons Treasury Committee said the Chancellor needs to take “urgent action” to help people left behind by his policies.

The self-employed face months waiting for support, while a package for start-ups is also conspicuous by its absence. Sources close to discussions within the Treasury say they are nearing a package to help out Britain’s innovative businesses, however.

Sunak is playing economic whack-a-mole to limit the damage of a sudden stop in activity. But the cost of the lockdown is rising by tens of billions of pounds and predictions of a colossal fall in output are worsening. The biggest economic rescue package in peacetime may not be enough.

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