More people are expected to lose their jobs this year as the end of the national vacation program leads to the collapse of businesses, experts will warn on Tuesday.
Ahead of next month’s budget, the Institute for Fiscal Studies (IFS) and Citi Research said it was important that the vacation program be run smoothly, rather than abruptly stalled to lessen the impact on businesses and households.
The end of the employment program is expected to lead to a series of “deferred” business failures – business failures that would have happened sooner if they had not been for government support.
However, the IFS believes the impact is likely to hit lower-income households worst as they were unable to save money during the pandemic. Meanwhile, higher earners are expected to have saved an additional £ 125 billion while stuck at home.
While the organization has warned that the vacation program shouldn’t stop all at once, it has said that the economy cannot adjust properly while the vacation program is in place.
It should “expire as soon as conditions allow,” the researchers said. However, the £ 20 weekly hike given to those with universal credit could remain, they argued.
IFS Director Paul Johnson said Chancellor Rishi Sunak’s second budget – but the 15th major fiscal event – should strike a balance between supporting jobs and businesses and running the economy on its own.
It should aim to secure the recovery, not to fix public finances.
“Any significant continuation of the vacation program must be limited and targeted,” he said.
“During the recovery phase, Mr. Sunak has to support jobs and investments, but also recognize and eliminate the various inequalities that the crisis has made worse.
“Fiscal policy should lean against the effects of loose monetary policy, which in turn has benefited the elderly and rich at the expense of the younger and poorest.”
A move to keep the universal credit surge of £ 20 would cost around £ 6.5 billion in the long run. But if you remove it, some single, childless adults could see their incomes drop by a fifth, the IFS said.
Last weekend the government announced that the NHS had given 15 million first-dose vaccines to people across the UK.
However, Citi analysts said that while the vaccine should aid a speedy recovery, it will ultimately also be incomplete.
They added that major reconfiguration will be required in the years to come.
According to the central scenario forecast by the analysts, the economy should still be 3% below its prepandemic level even by the end of 2021.
Borrowing is expected to reach around £ 400 billion in the financial year. This is the highest level in history aside from the world wars.
Citi forecast borrowing will still be around £ 130 billion a year four years from now, double the pre-pandemic level.
Because of the low interest rates, borrowing costs are historically low. However, the Chancellor’s hopes of balancing the books while ending austerity measures suggest that HM Revenue and Customs may have to raise another £ 60 billion in taxes.
This number is fraught with uncertainty, warned the experts.
Mr Johnson added, “In all of this, the Chancellor faces enormous economic uncertainties as the economy adjusts to the triple challenges of Brexit, the recovery from Covid and the transition to Net Zero.
“It is possible that this growth will be fast enough for large budget deficits to largely resolve on their own. However, this is not a central expectation: it is more likely that we are on the way to persistent unsustainable deficits.
“Right now, Mr. Sunak needs to focus on support and recovery. Settlement in the form of large future tax increases is very likely, but not yet inevitable. “