The Bank of England’s chief economist has warned against extending the government’s job retention scheme, saying that such a move would prevent a “necessary process of adjustment” taking place.
Amid growing calls from industry groups to keep the furlough scheme in place for certain sectors, Andy Haldane told the City A.M. podcast that the Coronavirus pandemic “has already delivered lasting structural change to the economy which does mean, regrettably, some businesses will probably not make it through and some jobs may well not be coming back.”
He added that “keeping all those jobs on life support is in some ways prolonging the inevitable in a way that probably doesn’t help either the individual or the business.”
Haldane said “the most painless thing that can be done is to recognise that and then put in place a process of adapting…to that new world, re-equipping [employees and businesses] to the new world of business new world of work.
“Our job as policy makers is to make that process of adjustment as seamless and as painless as possible for everyone concerned.”
Some industry bodies have warned that the end of the job retention scheme – which saw the government pay up to 80 per cent of the wages of furloughed staff – next month risks a second wave of job cuts.
A recent survey by accountancy firm BDO found that 97 per cent of companies have already made redundancies. While 60 per cent of medium-sized companies intend to further cut jobs once the scheme ends.
As an alternative Haldane suggested that businesses should look to wage restraint and even reduced hours before making job cuts.
“For me that would be a less painful way of businesses adapting now, if the burden was shared across the workforce for those companies for which demand hadn’t fully returned, and shared through..somewhat lower pay rises or somewhat shorter hours rather than all the burden being taken in job losses for a smaller number of people.”
He said adopting a more flexible approach might be “one of the things that protects us from too many more job losses.”
In a wide-ranging interview with City A.M. editor Christian May, Haldane also suggested that firms which have taken on debt in order to survive the crisis may need additional help. He raised the prospect of some kind of debt forgiveness or restructuring in order to keep businesses investing and retaining jobs as the recovery takes hold.
If a company is unable to pay back the debt Haldane asks whether there “there are means by which that debt burden might be alleviated” in a ways that benefit both the company and the wider economy.
Haldane also offered a more upbeat assessment of the economy, acknowledging people’s anxiety as the UK enters its first recession in 11 years, saying: “It’s understandable right now why people are concerned, they’re worried, they’re anxious…there are plenty of things to be concerned, worried and anxious about.”
However, pessimism surrounding the economy and job losses could “risk becoming self-fulfilling, and you’re then sucked down into some expectational vortex”.
It contrasts with a more gloomy outlook offered by the BoE’s interest rate-setter Michael Saunders last week, who said it was “quite likely” that further monetary easing will be appropriate. He added that there could also be scope to expand the Bank’s bond-buying plan.
Haldane said that the “recovery isn’t being given enough credit” and the economy “has bounced back” in large part because “the consumer has shown themselves to be incredibly resilient and adaptive and so too have businesses.”