by Namrata Majithia 13th May 2020
13th May 2020 UK Political, Economic and Social Update during Covid-19

13th May UK Political Update – The Pressure Builds

A total of 226,463 people have now tested positive for coronavirus in the United Kingdom (as of 12 May). Of those hospitalised, 32,692 have sadly died.

The extent of the health crisis in the country was exposed by figures from the Office for National Statistics showing that in the six weeks until  May 1, there were 46,494 more deaths than the five-year average.

The lockdown has now eased. From today workplaces are opening again, for those who cannot work from home, athough the  unions representing teachers, train drivers and factory workers are fearful about the safety of their members.

Anyone in England can now play sport with a friend or family member from outside their household, or socialise with them in the open air for the first time in more than six weeks.

Unlimited outdoor exercise and picnics (for two) are now allowed. New guidance is also expected to allow larger groups to gather to celebrate events such as weddings.

The government also wants all English primary-aged children to return to school in June and spend up to a month back in the classroom before the summer holidays begin in early July.

Garden centres in England will be open from today. By the start of June, non-essential shops (like clothes and household goods) will reopen; some hairdressers, pubs and cinemas could follow from July. However, the government  said that if infection rates rose again, restrictions would be tightened “possibly at short notice”.

In line with relaxations in the wider world, Parliament is also trying to  signal a swifter return to normality. Jacob Rees-Mogg, Leader of the House of Commons, said yesterday that he wants to end the current virtual sittings, where most members of Parliament join via video link, “as quickly as possible” in June. Parliament “must set an example of how we move back gradually to a fully-functioning country again,” he said.

However, asking MPs to return to a cramped chamber and to vote by crowding through lobbies seems incompatible with the current advice of staying two meters away from other people at work and outside.


 

13th May UK Economic Update – Mortgaging our Future

Rishi Sunak, the Chancellor, announced yesterday that the furloughing scheme – where the government pays 80 per cent of the wages of those unable to work because of the lockdown – will be extended to October, suggesting that the government thinks that is the earliest date that most businesses could be operational again. It will cost about £80 billion.

By the end of May Sunak will announce how the government will seek to shift some of the burden onto employers. From July, employers will be expected to pay some of the 80 per cent: and that is when redundancies will start.

As Philip Aldrick writes in The Times: “There is no good option for Mr Sunak. Even with the furlough scheme two million people are expected to lose their jobs. Were all furloughed staff to join them, a quarter of the workforce would be unemployed and a million companies would go under. That kind of collapse would leave deep scars on the economy.”

At some point someone is going to have to pick up the tab for this extraordinary bailout. Treasury documents leaked to The Daily Telegraph suggest the crisis will cost the Exchequer almost £300 billion this year in state-funded bailouts and lost revenue.

The document sets out a proposed “policy package” of tax rises and spending cuts and forecasts Britain will have a £337 billion budget deficit this year, compared with £55 billion in the March 2020 budget. The report suggests that tax rises and spending cuts that would raise up to £30 billion may be needed to help fund the increased level of debt.

There is talk of the hoped-for  V-shaped recovery – where a sharp drop in growth is matched by an equally sharp bounce-back – instead giving way to an L-shaped recovery, where the economy collapses and stagnates for years.

The policy paper raises the prospect of breaking the Tories’ 2019 election pledge not to increase income tax, national insurance or VAT. “A 1 per cent increase in the basic rate of income tax would raise around £5 billion p.a.,” the document says. A two-year public sector pay freeze could save £6.5 billion by 2023-24, while axing the pension triple lock could save £8 billion a year.

Ironically the multi-billion pound bailout might save some jobs and businesses which are then crippled by the tax bill to pay it back later.

The first sign of the trouble that lies ahead came this morning with data from the Office for National Statistics showing the economy shrank by 2 per cent in the first quarter of 2020.

That’s the fifth biggest drop since comparable records began in the 1950s: the biggest drop in the 2008 financial crash was -2.1 per cent in a single quarter. Twice in the 1970s the economy shrank by more: 2.2 per cent in 1979 and 2.7 per cent in 1974.

In March alone – remembering that the lockdown only started on March 23 – the economy shrank by 5.8 per cent. It means Britain is already in recession, we just don’t yet know exactly how bad.

For more details, see here PWC’s weekly economic update


 

13th May UK Social  Update – Don’t Plan a Summer Holiday Yet

The Foreign Office continues to advise against all non-essential travel outside the UK, meaning that any plans for trips to Portugal are still very much on hold. Plus the government plans to quarantine for 14 days anyone arriving from foreign countries from early June – more details are due soon. Arrivals from France are exempt from quarantine rules “at this stage”. Holiday companies have nevertheless reported a surge in inquiries for trips there this year.

Ryanair tentatively plans to start European flights again in early July.

Ministers will unfreeze the country’s housing market today and allow people to visit and view properties. This also means that all the house purchases and sales that have been on hold since the lockdown started can now proceed.
The NHS coronavirus tracing app will be introduced across England in “mid-May”, while the human army of 18,000 tracing agents will be in place by the end of the next week.