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19 March 2020updated 30 Jul 2021 6:15am

The radical government policies we need to support people through a deep economic shock

The Chancellor must extend sick pay, subsidise wages and dramatically increase welfare benefits to reassure families. 

By Torsten Bell

The coronavirus health crisis is now a full-blown economic crisis, and one that will last for much more than a few months. We are going to see the tragedies of firms going bust and people losing their jobs. 

The epicentre of the economic shock will come first to those sectors most directly affected, not by the virus itself, but by the necessary social distancing measures announced by the government to combat it. Over six million people work in sectors such as non-food retail, hotels, restaurants, travel and personal service industries – in firms that face partial or complete closure for the foreseeable future. A lot of their jobs are on the line.

And with schools also closing from next week, the impact on our jobs market will be even more widespread. These are scary times, for our health and our livelihoods. 

In the face of this challenge we need a bolder economic response from the government. The goal must be not only to avoid hardship, but to reduce the depth of the crisis by limiting the pressures on firms, and reassuring families that they will not suffer deep and long-lasting hits to their income.

Crucially, the response must involve measures that can actually be done, and done quickly, in the face of an economic crisis developing much more quickly than the 2008 financial crisis. Now is not the time for the policies people have always dreamed of, such as Universal Basic Income and “helicopter money”, but for bold moves that will make a difference to those in need immediately. Here’s the four things the government can do straightaway.

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First, extend statutory sick pay to the two million low-paid employees who don’t currently earn enough to qualify it. This is straightforward, but clearly not enough. Most of the hit to family incomes in the weeks ahead will come not from workers being ill, but from them having no work as firms’ revenues dry up. 

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So second, we need additional support for the many workers in affected sectors who face the prospect of having no work to do in the coming months. We cannot allow these workers to simply join dole queues, becoming detached from their employer who may need them in a few months’ time. So, we propose a new Statutory Retention Pay scheme, modelled on the tried-and-tested Statutory Maternity Pay, so that workers can continue to be paid at least two-thirds of their wages via payroll, with the state stepping in to meet the costs.

But job losses are inevitable, and many more people will require the support of our social security safety net. However, that safety net has been eroded over the last decade – unemployment benefits are worth no more today than they were in the early 1990s, despite the economy having grown by 75 per cent since then.

So, third, we need an immediate uplift to our core unemployment benefits – Jobseekers Allowance, Employment and Support Allowance and Universal Credit – of around a third, to £100 a week.

Fourth, with schools set to close, the income pressures on low-income families with children could be severe. We need a wider strengthening of our safety net. Having frozen working age-benefits, such as child-related support, for the past four years, the government should immediately uprate them by 10 per cent.

Taken together, these measures amount to a £22bn package to support firms and families through the tough coming months. None of this will be easy, but as the Chancellor has rightly said, now is the time to do “whatever it takes” to support the economy. He is right. These proposals are what it will take, and the time to act on them is now.