The government has been urged to take a more active approach to job creation and keep public spending high to avoid “sleepwalking into an unemployment crisis” next year.
The House of Lords Economic Affairs Committee said the Treasury should move away from wage subsidies and instead fund jobs in places they are needed such as healthcare. It also recommended a new jobs, training and skills guarantee for young people.
It comes as the roll-out of effective vaccines has boosted optimism about the economy. Markets have risen sharply in the hopes that normal life can return in some form next year, healing bruised sectors.
Yet the UK’s budget watchdog said last month that unemployment is set to rise to around 7.5 per cent next year. That would put 2.6m people out of work.
Lord Michael Forsyth, the chair of the Committee, said it is “wrong” to assume that the crisis will be short-lived and vaccines mean the economy needs less support.
“The sectors with jobs that historically lead labour market recoveries – hospitality, retail and leisure – have been flattened. They are likely to be in a worse state in the spring when wage support ends. Unemployment will spike.
“The government is sleepwalking into an unemployment crisis. The chancellor needs to get ahead of the curve.”
Government must ‘avoid uncertainty’
In a major report published today, Forsyth’s committee recommended a more hands-on approach to job creation.
It tacitly criticised the government for creating “a significant amount of uncertainty” with its patchwork of economic policy announcements. Chancellor Rishi Sunak altered his wage subsidy scheme numerous times in the autumn.
Public spending has risen to levels unseen since World War II. But the report said that “the government will need to continue to spend to generate a sustainable recovery”.
The committee said the Treasury should significantly expand the number of social care workers by increasing funding in the sector. It also recommended more funding for childcare and a focus on green projects.
Another major recommendation was for the creation of a new job, skills and training guarantee. It would be available to every young person not in full-time education or employment for one year.
Treasury hails ‘plan for jobs’
A Treasury spokesperson said: “Throughout this crisis, our top priority has been protecting the lives and livelihoods of people across this country. The furlough scheme has protected millions of jobs across the UK.
“Our ‘plan for jobs’ also supports, creates and protects jobs and includes measures such as the £2bn kickstart scheme, tripling traineeships, incentives for firms hiring apprentices and doubling the number of work coaches, so that nobody is left without hope or opportunity.”
However, the Lords report argued that the kickstart scheme should be expanded and enhanced. For example, it said it should be made available to more young people than just those who have claimed Universal Credit for a minimum of six months. And it said the government should consider raising subsidies for firms to take on apprentices.
The report added to pressure on the government to tackle company debt and boost Universal Credit benefits.
“The Government should commit to making the temporary increases to Universal Credit permanent, including the £20 per week increase to the standard allowance,” it said.
On coronavirus support loans, it said: “The government should create a new state entity to manage debt and repayments.”