A well-known admirer of Sir Winston Churchill, Prime Minister Boris Johnson now has a new role model. The American President Franklin Delano Roosevelt is best known for two things. Firstly he led the US for most of the Second World War even though he was in latter years forced to use a wheelchair due to long-term illness. In the process he was elected for a third term, something which is no longer possible under the revised terms of the American constitution. Secondly 'FDR' was widely praised for rebuilding the American economy through the mechanism of the ambitious 'New Deal' he launched to kickstart an economy that had been decimated by the Great Depression. Now, sensing the scale of the economic fallout from the pandemic, the PM is seeking to launch his own version of the 'New Deal'. He launched it in a speech this week in which he used the mantra 'build, build, build' as his slogan to drive recovery. Basically the plan is to bring forward infrastructure projects on public projects such as new schools, hospitals and roads and generate momentum for an economic recovery on the back of these.
It would be fair to say that the initial response from commentators has been mixed. The budget of £5 billion sounds a lot (and to most of us is a lot…) but it is a metaphorical drop in the coronavirus ocean – total expenditure on fighting the virus is now heading north of £100 billion. That massive figure does not include any hidden costs such as those of increased unemployment benefits with some projecting that the jobless total will rise to possibly 3.8 million by the end of the year, a level not seen since the 1980s. Tax revenues are also certain to be dramatically down as a result of lower individual and corporate earnings hitting government finances still further. The announcement of the cash underwhelmed politicians in parts of the UK outside England. The Welsh Health Minister Vaughan Gething accused Mr Johnson of looking down the back of departmental sofas to find spare cash. He also suggested that not a penny of the money would come to Wales which has had its own particular issues with the coronavirus and included within its borders some of the more economically-challenged areas of the UK even before the virus appeared. Indeed many have suggested that most of this £5 billion is not 'new' cash at all but a recycling of previously-announced schemes albeit brought forward a bit; and reading the financial press this week suggests that this is really just a bringing forward of schemes out of the £600 billion of spending previously announced by the Chancellor for the period up until mid-2025.
Such accusations are often made and are part of everyday politics. However, some context is perhaps helpful. Germany recently announced a stimulus package worth €130 billion which accounts to nearly 4% of the country’s GDP. Even that though pails in comparison with FDR’s 'New Deal' in the 1930s where the cost of the scheme at some stage amounted to about 40% of the 1929 pre-Depression GDP of the US. These figures highlight a massive difference between the funding for investments that have so far been identified and what others from both the present and the past feel is necessary to reboot decimated economy. Those benefitting from the £5 billion directly will no doubt be delighted; but this is in purely financial terms a long way from the levels reached by the real 'New Deal' at its peak.
…but job cuts in multiple sectors highlight the scale of the challenge
This has been a tough week for the aerospace industry in the UK. Airbus, the biggest plane manufacturer in the world, announced that some 15,000 jobs will need to go across Europe with about 1,700 of those in the UK. This is a highly-skilled, well-paid industry and for each job in Airbus, it has been estimated that a further three in the supply chain rely on it. The proposed cuts, which amount to about 17% of the groups 90,000-strong total workforce, come as the Chief Executive of Airbus Guillaume Faury warned that he did not expect air traffic to recover to 2019 levels before 2023 and perhaps as late as 2025. Although France and Germany will be the biggest losers, shedding about 5,000 staff each, the loss of jobs in the UK is most unwelcome news. It comes on top of similar announcements by carriers such as BA, EasyJet and Ryanair which will also badly impact the UK economy. Imminent changes to travel and quarantine arrangements (in England at least, though other parts of the UK may soon fully suit or not as they see fit) are presumably designed with the aim of helping the industry in mind.
It has also been a terrible week for the UK High Street. Significant job losses have been announced by a number of major retailers including household names like John Lewis and at the high end of the scale Harrods both announcing a need to make serious cutbacks to existing workforces. To compound the sense of gloom around the job situation a report in the Financial Times of 3 July announced that 3/4 of factories are preparing to shed staff. In many of these cases the likelihood is that the imminent winddown of the furlough scheme has forced employers to bite the bullet. Realising that funding from the government is moving towards an endpoint, hard decisions are now having to be taken.
All of this poses major challenges for the government and for Chancellor Rishi Sunak in particular. The Chancellor has received a good deal of praise for his actions so far. However, it was of course inevitable that the scale of the furlough scheme would sooner or later have to be rolled back and that moment of truth is now drawing ever closer. The challenge for the Chancellor personally now is likely to take on a very different complexion. In the coming week he will announce various economic measures which he plans to take in an attempt to reboot the UK economy. This is described as moving from a support to a stimulus phase where households and companies are both encouraged to return to normal spending levels as much as possible and as soon as possible. It is likely that the upcoming statement will focus particularly on the need to protect jobs. This will no longer be through the comfort blanket of furlough schemes but rather via initiatives designed to help businesses rebuild themselves from the devastation of the past few months. Millions of job-seeking Britons will be hoping that he is successful in his endeavours.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
You need to sign in or register before you can add a contribution.