Britain needs a ‘Full Monty’ policy response to protect and create jobs in the face of the worst unemployment crisis in a generation

Britain needs a ‘Full Monty’ policy package, including a Job Protection Scheme to subsidise the wages of hospitality workers and its biggest job creation programme in peacetime, to respond to the highest unemployment since the early 1990s, according to a major new Resolution Foundation report published today (Monday).

The Full Monty takes a deep dive into the nature of the current jobs crisis and the policies needed to tackle it, against the backdrop of Office for Budget Responsibility projections of unemployment hitting 10 per cent later this year. Employment had already fallen by 430,000 between March and April.

The Foundation argues that policy makers need to recognise the unique nature of this crisis, with lasting job losses being unusually concentrated in hardest-hit sectors. During the lockdown, workers in hospitality, non-food retail and arts, leisure and entertainment have been more than twice as likely to have experienced job changes than the economy as a whole. Vacancies in the hospitality sector are down 90 per cent since March.

This has also put young people and low-paid workers in the firing line, as they are most likely to work in hard-hit sectors. However. the Foundation’s analysis shows that low-paid workers have been more affected than higher paid workers even after accounting for the sectors they work in.

While some commentators suggest the crisis could disappear as quickly as it arrived, The Full Monty warns that the unique sectoral nature of the current crisis will make it far harder to get unemployment down again.

Hardest hit sectors, such as hospitality, retail, leisure and tourism, will continue to be most affected by ongoing social distancing based on the experience of other countries – retail and recreation trips remain 17 per cent down in France and 13 per cent down in Germany, despite these economies being ahead of the UK in reopening.

This will mean significant job losses as these labour-intensive sectors, far from fulfilling their normal leading role in a jobs recovery, instead shrink significantly. Hospitality, for example, employs five times more people for every million pounds of output than finance and insurance, but faces higher costs and lower demand for a long time to come.

With half of business leaders expect to lay-off staff as the Job Retention scheme is phased out, the Foundation notes that job losses risk being larger than after the financial crisis. RF analysis based on business surveys suggest that over 1 million furloughed workers could lose their jobs.

In addition, low inflation (currently running at 0.5 per cent) makes it harder for real wages to fall in the face of the shock, while falling firm profitability in recent years may also compound employment falls (three-in-ten firms say they expect to run out of cash in the next three months).

The analysis does not support the idea that workers leaving the hardest hit sectors will swiftly shift to new jobs elsewhere. Such moves are relatively rare – over the last decade, three quarters of those losing jobs have returned to work in the same sector.

The Foundation says that given the scale of Britain’s jobs crisis, the Government will need to announce a full spectrum policy response that reduces job losses in hardest-hit sectors, while putting in place Britain’s biggest ever peacetime job creation programme.

Crucially, this should include policies targeted at the unprecedented challenges faced in the current crisis, and not simply repeat policies from previous downturns.

The Government’s plan to get Britain working should include:

  • Reducing further job losses.The Government should flip the Job Retention into a Job Protection Scheme, subsidising the wages of those working in the hardest hit sectors, to enable firms to maintain employment. Alternatively, raising the employer National Insurance Contributions (NICs) threshold in these sectors could incentivise keeping staff on.
  • Targeted tax cuts to encourage new hiring. An economy-wide NICs cut would be expensive and be poorly targeted, but it should be available for firms that grow their workforce.
  • Public investment in new jobs. Publicly-funded job creation should be focused on roles that are needed anyway, and can be as geographically spread as the shrinking sectors are. Priorities include expanding the social care workforce and retrofitting homes.
  • Job and training guarantees for young people. This would help tackle youth unemployment, and the long-term scarring effects it can have on young people’s careers.

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“Britain is slowly emerging from the lockdown that brought the economy to a halt and sent employment tumbling. But we are a long way off returning to business as usual, and its jobs crisis is far from over.

“A second wave of unemployment later this year, following the phasing out of the Job Retention Scheme, could leave Britain with the highest unemployment levels in a generation. The Government should adopt a ‘Full Monty’ policy response to avoid this.

“This should include a Job Protection Scheme to maintain employment in hardest-hit sectors, and the biggest ever peacetime job creation programme. Major public investment in social care and retro-fitting homes could both spur job creation, and help meet the challenges of an ageing population and climate change.

“The success of the Job Retention Scheme in protecting family incomes has shown why it pays to be bold with policy decisions. That same ambition is needed in the next phase of the crisis.”