A former UK chancellor has warned the government needs to urgently prepare for a fresh wave of job losses as it begins to wind down support for firms and workers.
Alistair Darling, Britain’s finance minister during the global financial crisis, backed more spending on job-creating public infrastructure projects, more generous welfare benefits, and retraining schemes.
He also said new chancellor Rishi Sunak should be “flexible” in ending the furlough scheme, and called for a VAT cut to support recovery by boosting consumer spending.
Speaking at a virtual think tank event on Monday, the former minister warned Britain could face “1980s levels of unemployment,” with many workers losing their jobs. He said the UK government had failed to tackle the problem then but this time had “been warned” about the looming crisis.
Darling joins a growing chorus of voices predicting unemployment will spike as the UK government begins to reduce its subsidies for millions of furloughed workers’ wages in the coming months.
He said the current chancellor had “responded well” to the crisis so far, but “may want to be flexible” in winding down the furlough scheme. Sunak should not be afraid to return to the Commons to announce more changes to the scheme, which has already been extended several times but is due to expire in October.
“We need to prepare now,” he said. “Frankly we didn’t do it in relation to the spread of the virus. For the economic response, we need to be far more sure-footed.”
Darling highlighted the “dramatic” fall in income facing furloughed workers if they lose their jobs and move onto universal credit, with research pointing to a 47% average drop in incomes. The difference reflects the far more generous support available through the crisis job protection scheme than the traditional benefit system.
The welfare system could be improved by tackling “design flaws” including a five-week wait for initial payments and rules that limit benefits for households with savings, he added.
He said the government should fund and devolve control over small-scale “shovel-ready” infrastructure projects, helping to revive the economy and create jobs for the unemployed. But he warned against major infrastructure as a short-term measure, adding: “Grandiose projects take years. We need to move faster than that.”
Darling was speaking at the event launch of a new report on Britain’s wealth gap between the richest and poorest, and the precarious state of household finances during the crisis.
The study, by the Resolution Foundation in partnership with the Standard Life Foundation, which Darling chairs, compared the experiences of the second poorest fifth of UK households with the highest-income households.
The analysis found one in four poorer families, couples or individuals had increased their borrowing, often on credit cards with high interest rates. Only one in eight high-earning households had similarly taken on more debt.
It also found in a survey that the average worker in a shut-down sector of the economy had just £1,900 in savings in May, compared with £4,700 of savings among those able to keep working from home.
A department for work and pensions (DWP) spokesperson said: “This government understands the challenges many are facing, which is why we injected over £6.5bn into the welfare system, including increasing universal credit and working tax credit by up to £1,040 a year, as well as rolling out income protection schemes, mortgage holidays and additional support for renters.
“Our work coaches across the country, in coastal, rural and urban areas are helping people add to their skills and enter into work as we move Britain into recovery. And this government’s commitment to levelling up opportunity across communities remains as steadfast as ever and will be at the heart of the revival.”