Treasury committee urges Sunak to rethink end to furlough scheme

Report adds to pressure on chancellor to continue targeted support for struggling sectors

This article titled “Treasury committee urges Sunak to rethink end to furlough scheme” was written by Larry Elliott Economics editor, for The Guardian on Thursday 10th September 2020 23.01 UTC

Pressure has mounted on the government to rethink the decision to bring its wage subsidy scheme to an end next month after an influential group of MPs said Rishi Sunak should continue to provide targeted support to struggling sectors of the economy.

The Treasury selected committee said viable businesses would go to the wall unless they continued to receive support from the state and urged the chancellor to “carefully consider” targeted extensions to the furlough scheme.

In a wide-ranging report on the impact of Covid-19 on the economy, the MPs said Sunak should:

• Consider extending the more generous terms for universal credit.

• Have a plan for helping debt-troubled small and medium-sized companies or risk prolonging the recession.

• Lay out a road map in the autumn budget for repairing the hole in the public finances caused by the pandemic but be wary of raising taxes too quickly.

• Temporarily abandon the triple lock on pensions.

• Explain what the government means by levelling up.

The report’s furlough recommendation was supported by trade unions and thinktanks. But despite the mounting pressure Sunak has shown no sign of backtracking on his decision to end the wage subsidies.

Treasury officials are, however, working on fresh measures to support the labour market during a period when the chancellor expects unemployment to rise. The Treasury insisted it would “continue to innovate in supporting incomes and employment through our plan for jobs”.

In its previous report the committee said Sunak should help more than 1 million employed and self-employed people who had fallen through the net and were not receiving financial help from the government.

Mel Stride, the Conservative MP who chairs the committee, said “The committee’s disappointment that the government did not implement our recommendations to help those who have fallen through the gaps in support persists. Our second report of the inquiry focuses on emerging challenges as lockdown measures are lifted.

“One such challenge is to target assistance effectively at those businesses and individuals who need it. The chancellor should carefully consider targeted extensions to the coronavirus job retention scheme and explain his conclusions.”

The report said spending was picking up after the easing of lockdown restrictions, but continued consumer caution, localised outbreaks and the prospect of a second wave of infections were hindering full recovery and making some degree of economic scarring inevitable.

It called on the government to come up with a scheme to help recapitalise those SMEs that were struggling and suggested repayments should be conditional on companies demonstrating sufficient financial health.

The report said over-hasty tax increases were likely to stifle economic recovery but signalled the committee would support the chancellor if he ditched the Conservative party’s manifesto triple lock pledge on pensions, which says the annual increase should be in line with earnings, inflation or 2.5% depending on which is the highest. Earnings have been artificially held down this year by the government’s income support schemes but are expected to rise by more than 15% next year as the programmes unwind.

The report said: “We are concerned that whilst there have been impressive examples of the Treasury moving at scale, at pace and with imagination to support the economy there are also disappointing signs of intransigence.”

Frances O’Grady, the general secretary of the TUC, said MPs from all parties were now urging Sunak to provide support beyond October.

“The TUC has set out a new plan for a job retention and upskilling scheme supporting short-time work. The chancellor must act quickly and decisively to put a scheme in place before unemployment surges.”

Torsten Bell, the chief executive of the Resolution Foundation thinktank, said: “This authoritative account of the economic impact of coronavirus should be required reading for Treasury officials planning the autumn budget against the highly uncertain backdrop of rising coronavirus case numbers.

“The chancellor will need to reconsider his plans to swiftly phase out support given the painful reality that the economic crisis is here to stay.”

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