This is not yet the worst recession in modern history, but there is a very good chance that it could be. In April, unemployment spiked with the one-month increase in new claimants rising at its fastest rate since 1947. Unemployment is now higher than at any point during the financial crisis and rising, and this is before employers decide whether or not to keep on the millions furloughed through the Job Retention Scheme.
The Government created this recession, rightly, by closing down the economy to contain coronavirus. Let’s hope the virus proves to be weakening. If not, the impact of closure and the disruption to patterns of production and consumption along with the fear that will live with us as long as there is no vaccine for COVID-19, suggest that lifting the lockdown marks the start of, at best, a weak recovery. It may be less weak if the Government ends its generally very effective support gradually and generously. Get it wrong, and we could find ourselves in a prolonged slump.
At the start of the lockdown, there was talk about how the so-called Spanish flu pandemic of 1918/19 paved the way for the economic and cultural renewal of the roaring twenties: the destruction of the virus and the war provoking creativity and dynamism in the aftermath. But the 1920s was characterised by a rollercoaster ride of stock market boom and bust and mass unemployment. A more sober response, and one which seems to have influenced the current Government’s policies, followed the 2008 crash: the last Labour Government using the state’s ability to underwrite risk to dampen the powerfully deflationary forces pushing down on the economy.
What we do next matters more than ever. This is a time neither for the restoration of the status quo stakes, nor for imagining some glorious but implausible utopias. If we really want to ‘build back better’ we should use our recovery phase to build on what councils across the country have been doing during the medical emergency – quickly rising to the challenge. The Government’s furlough, business rates and lending schemes have put the economy on ice. We need to be ready for the thaw.
There is no place for complacency, of hastily assembled 10-point plans or simply wheeling out the same old proposals for the same old capital projects. In our work with councils, local enterprise partnerships and companies across the country, two issues seem fundamental to the next phase of the crisis. Both are important now but will become more so as we try to ease the economy back into some form of normality.
Firstly, a debt-burdened private sector pre-crisis has been kept alive by Government lending and grants. But businesses in the many sectors facing supressed demand can’t repay loans from current revenues, they need patient equity. This is an argument made by Jim O’Neill and Howard Bernstein, among others. A variant of this has been advanced by the property sector, essentially arguing that the crisis-hit town and city centres of Britain need retail and other property to be bailed out – effectively furloughed – as current Government support is withdrawn. Both of these ideas go to the heart of the problem we face in sustaining the capital stock of the economy in the period before recovery fully kicks in.
Secondly, as the furlough scheme ends later this year, some of the eight million people whose wages it is paying, will end up unemployed. Many of those will have worked in a customer-facing service economy that is unlikely to bounce back. It would take less than a third of those furloughed to lose their jobs for unemployment to hit levels higher than those seen in the early 1980s. No-one in their right mind wants to repeat that. We need to look at every option – learning the lessons from the 2009 Future Jobs Fund (which councils ran), experimenting with job guarantees and large-scale retraining opportunities to create the demand for labour in the short-term.
This is not the 1980s or the 1920s. This crisis is different: the economy is nimbler in the internet age, but the state now has less capacity to manage unemployment than in the 1980s.
We need to do everything we can to avoid the human and capital wastage of both those crises.
The next phase of Government stimulus is due over the summer, which looks set to pledge green growth. Shovel-ready projects and job creation will be the priority. It seems unlikely and undesirable for the Government to act alone in this.
Councils need to lead the debate with imagination and determination, putting concrete ideas on the table and being prepared to deliver the jobs and sustainable growth the chancellor will be targeting.
The life chances of a great many people who will need work and the wellbeing of the country might depend on it.
Mike Emmerich is founding director of Metro-Dynamics