The UK government must take “further radical policy steps” to tackle the economic fallout from coronavirus, a think tank has said, amid huge uncertainty over the length of the outbreak.
The Resolution Foundation praised the government’s response so far, which includes £330bn of lending and a scheme to pay furloughed workers’ wages.
Yet it said more must be done to ensure the economy recovers from the coronavirus slowdown, including a beefing up of its job retention scheme and asking the Bank of England to directly finance government spending.
The report came amid dire warnings about the UK economy, which could contract by as much as 35 per cent in the second quarter according to the Office for Budget Responsibility.
The Resolution Foundation today said a ‘V-shaped’ recovery with about a three per cent hit to GDP over the medium term is possible if a lockdown stays in place for three months.
Yet it said that “if a six or 12-month lockdown is necessary, it could mean a far longer recovery of between two and five years, and a permanent GDP hit of five to seven per cent”.
The report notes that a six-month lockdown could result in unemployment averaging 5m in 2021 as the government’s job retention scheme is phased out. The Foundation said this would “far exceed” the peaks seen during the 80s and 90s recessions.
The Resolution Foundation therefore urged reforms to the scheme, which pays 80 per cent of people’s wages so long as they are furloughed. It said the government should ensure furloughed workers can return to work part-time if this can be done safely.
The think tank also said the government should ask the Bank of England to directly fund government spending.
The Bank is already doing this through its so-called ways and means facility, which is essentially an overdraft for the government. But the report called for a “a transparent, time-limited framework for monetary financing”.
“As well as refining its crisis response, the government must also plan a sustainable recovery,” said Richard Hughes, research associate at the Resolution Foundation.
“In doing so, Ministers should remember that young people and low-paid workers have borne the brunt of the crisis, and will need to be at the heart of support to get the economy back on track.”
By Harry Robertson
Source: City AM