Are we seeing the limits of the Treasury’s one-size-fits-all approach? The Chancellor won plaudits early in the pandemic for eschewing ideology and launching broad support measures for business and the jobs market.
By the logic of those interventions, businesses that are going to be hit by the four-week delay to the full reopening of the economy should get extra support.
Companies that could flourish in the post-Covid world may struggle to cover their costs while social distancing, or work from home guidance, remains in place. Government policy dictates that they either can’t open, or can’t function normally.
The 10 per cent contribution to furlough costs from July, for example, looks poorly timed for many pubs, restaurants, bars, leisure and theatre venues. Furlough rates in early May were just under 30 per cent in hospitality and leisure, compared with 8 per cent overall, says Resolution Foundation, and much lower for sectors such as construction or manufacturing that are largely operating as usual.
With the pick-up of activity contributing to a sixth consecutive monthly increase in payrolled employees, a natural answer would be to target support where it is most needed.
It’s a solution that the Treasury has long resisted, particularly for the furlough scheme. One reason, says Simon French at Panmure Gordon, is that it is operationally tricky to ringfence hospitality, for example, from its suppliers or other businesses that rely on it.
With reports of shortages of workers in some parts of the economy, the Treasury seems unlikely to finesse by sector its £64bn banner programme now. It has extended the scheme to September to cover the reopening period.
The hospitality sector didn’t break even until the bank holiday week in August last year after restrictions were lifted, according to UK Hospitality, which estimates that the latest delay will cost the sector £3bn in sales. It remains to be seen how keen drinkers are to be crammed five-deep at the bar after weeks of spacious, app-enabled table service. Even if trading is strong, the sector is facing billions in unpaid rental debt, with no clear plan for what happens when a ban on commercial evictions is lifted this month.
An easier option than tinkering with furlough would be to extend already-targeted measures: the business rates holiday for retail, hospitality and leisure properties is due to drop to 67 per cent relief from July, pushing up costs. Restart grants of up to £18,000 for hospitality companies announced at the budget will have been used up for many, particularly those kept shut by constrained space or eerily-quiet city centre locations. Those could be repeated in some form for what is — promises, promises — only a four-week delay.
A tougher test for the across-the-board approach may come from the travel and aviation sectors. Unlike the July “terminus date” promised by the prime minister for other Covid restrictions, the traffic light system for travel is here for the foreseeable. The sector, at the Treasury’s urging, has proved adept at rustling up private finance and tapping broader government support and loan schemes. But its rather-modest business rates relief is due to end in September and an industry request to consider a sector-specific furlough scheme has reportedly got short shrift.
Of the 1.6m jobs in the aviation and tourism industries, about half have been sustained by government support or have already been lost, according to the travel industry body. The airport sector alone missed out on £2.6bn in revenues last summer, with passenger numbers that peaked in July at 22 per cent of 2019 levels. They are currently below 5 per cent, according to the Airport Operators Association. Predictions of depressed flying to 2024 that felt gloomy a year ago are now all too believable.
The prime minister this week said we must “learn to live” with Covid. Support may need to reflect that this will take a lot longer in some sectors than others.