Coronavirus recession not yet a depression

By Faisal Islam - Economics editor
A woman wears a face mask on the London Underground

"It's like sleep mode" was the way one Cabinet minister described the point of this significant intervention in the employment market.

The idea here is to help employers put the workforce temporarily not needed in a sharp downturn into hibernation for when normality returns, not to fire them and do irreparable damage to the nation's productive capacity.

This move is an incredible intervention for any British government, let alone a Conservative one, but proportionate to the size of the terrible but temporary economic impact that could follow the coronavirus shutdowns.

Let's be clear, we are in a recession already, as is most of the coronavirus-afflicted developed world. The point of actions such as this is to prevent the permanent scars of depression.

The seeds are there for a quick return to growth - all the same buildings and computer systems and networks and transport infrastructure are there, once this wretched pandemic passes, whether that is in six months or nine months or a year.

In theory it should save hundreds of thousands of jobs. Perhaps many more.

Employers have to accept that the government is doing something they would have never imagined a UK government would do.

At 80% of wages up to £2,500 a month it is a scheme more generous than some of the high welfare Scandinavian countries. It instantly transforms the social safety net of this nation.

Weeks after Brexit, the UK does the most continental European-style economic intervention for decades.

A massive support package that was the product of government negotiating in a small room with business groups and the unions.

It shows that the Treasury does believe that the very sharp plunge in the size of the economy can be followed by a bounceback - but not if millions of people are scarred by unemployment. Economics shows that these can have long lasting impact.

The chancellor was given the room for this partly by the Bank of England's biggest ever announcement of purchasing government debt.

There are fiscal risks here if this pandemic lasts much longer than three months. But the risks of not acting were much greater.

Indeed thousands of workers had already been fired.

The Treasury scheme is designed to get those immediate economic victims of the crisis back in to their workforces. Business owners will then have to give them a leave of absence and receive taxpayer funding worth four-fifths of their salary.

Such employees should be picking up the phone to their ex-bosses.

There are gaps. The government is not saying there will be no pain.

The self-employed still have it relatively tough, despite some changes to the benefit system. A delay to billions in VAT payments should also help things in the interim.

But for those in jobs, or very recently fired, it requires employers to hold their nerve until the taxpayer payments begin at the end of next month.