FUTURES-DIAGNOSIS LTD

#463 China Works

28 Black Prince Road

London SE1 7SJ

UNITED KINGDOM

Call: +44 (0) 7970 176462

  • Twitter Social Icon
  • LinkedIn Social Icon

Only state action now can prevent a slump

The UK Government has to intervene more directly to prevent the Covid crisis from turning into an economic slump. Now that the health crisis has taken a serious turn, all companies, large and small, will be looking at the short and medium consequences for their businesses. For most companies, the wage bill is the largest single outgoing and contingency survival plans will involve planning for redundancies if and when demand drops, as it already has dramatically, in the entertainment industries.



While the length of this crisis is unknown, the Government should take action now to slow down the rate of redundancies. Mass unemployment will create tremendous hardship and put a huge extra strain on society. It will also increase the chances of the health crisis turning into an economic slump. The Government’s role in this crisis is to keep the economy going for as long as possible, not just the emergency services.


The Government’s response so far, in making large sums available for loans to businesses, will not prevent mass redundancies. Many employers will take the view that taking on extra debt, in a period of total uncertainty, makes no sense. Most businesses will be trying to minimise outgoings and preserve cash. In this scenario, redundancies are high on the agenda once demand for goods and services drops.


In order to prevent mass unemployment and a possible slump, the Government needs to immediately subsidise the wages of private sector workers.


The simplest way of doing this would be to immediately suspend collection of PAYE receipts, for 3 months initially, and allow businesses to keep the money, not as a loan but a grant. This would encourage businesses not to fire people.


It would be simple to administer, just a letter telling businesses not to pay their PAYE bill. It would also mean that only those businesses which keep their employees on would benefit, as they would have less PAYE to save if they had fewer people on the payroll.

The Government itself will need to borrow to make up for lost PAYE receipts in order to take this step. The state must become the borrower of last resort in what is a wartime crisis.

  • Twitter icon
  • LinkedIn icon