Will Rishi Sunak exorcise the ghoul of looming mass unemployment?

Credit: PA

There is only one test for what the Treasury is billing - with all its magnificent talent for hyperbole - an "update", which is the impact it will have on taming the looming ghoul of mass unemployment.

Will Rishi Sunak's stimulus package deter or even reverse decisions to sack people by those businesses that are most squeezed by the social distancing imperative? That are suffering both a reduction in capacity (tables removed from restaurants for example) and in demand (those many people who remain anxious about any social activity)? There are millions employed in such industries, from shops, to bars, to theatres.

The expected targeting of VAT cuts on pubs, restaurants and so on may encourage us - for better or ill - to order that extra pint or plate of nachos, and damn the prime minister's clarion call for us to fight the flab (as it used to be called). But if you are a publican, you probably pocket the marginal profit and still sack half your bar staff, given that the number of people allowed inside the venues have shrunk so much.

Will it do anything to help those whose unemployment seems inevitable (whatever the chancellor does) because they are either in industries battered by collapsing global demand - oil, airlines, aerospace manufacturing - or are leaving school and university in the tightest jobs market for two or three generations? Again, those whose prospects are blighted run to millions.

And can the Chancellor in any way address the perverse side effect of the Bank of England's palliative for Covid-19 economic torpor, which was to cut interest rates and create hundreds of billions of pounds of new money, one of whose consequences is to cut the cost of capital relative to the cost of employing people, and is therefore encouraging companies to sack people and replace them with machines and AI.

And by the way, that cut in the price of money by the Bank of England has already delivered steroids to the housing market. So I am not all clear why Sunak is planning to double down on that steroidal injection by announcing a stamp duty holiday for house purchases up to £500,000.

Is money really so loose to mention that it can be deployed on a problem that is at best second order and may not exist at all. The big point is that the UK housing market's structural flaw is the same as it ever was, not an absence of demand, but the shortage of supply - and withdrawing stamp duty even for a period will only make this flaw worse.

The really big worry among businesses, trade unions and even Tory MPs is that the compelling case made last week by the Bank of England's chief economist, Andy Haldane, that the recovery has come faster than many anticipated is making the Treasury and government complacent about the scale of the challenge ahead.

Even if Haldane is right that the cumulative loss in GDP or national income caused by the virus and the government's response to date will turn out to be around 8%, rather than the Bank of England's initial "scenario" of 17%, that is equivalent to what the doomsayers were predicting would be the cumulative loss of prosperity from Brexit over 20 years.

It is non-trivial, an epoch-defining shock.

It is still the kind of blow to our living standards and capacity to fund public services that would prompt most chancellors and prime ministers to wake up screaming.

And as Haldane points out, the risks remain "to the downside" - and all because of the uncertainties around how far unemployment will rise, and how much that will depress consumption and growth for months and years.

Credit: PA

There are measures Sunak can take to dampen the risk of a return to the 1980s cancer of mass long-term unemployment - such as the £3bn he has announced today to be spent on helping home owners and managers of public buildings insulate better and improve energy efficiency.

But this is a garden hose to fight a raging forest fire. With the best will in the world, an unemployed barista cannot become a skilled fitter of double glazing overnight.

And although we are expecting an ambitious programme of work experience and retraining to be unveiled - including the recruitment of thousands of new employment advisers to operate under the aegis of the Department for Work and Pensions - even the best designed skills-enhancing schemes and careers advice programmes will reduce unemployment over months and years, not weeks.

Here is the lethal pincer for prosperity and social cohesion. Millions face unemployment knowing they can't temporarily or permanently move into lower skilled work, because (as I've mentioned before) it is those lower skilled jobs in hospitality, retail and so on that are most at risk of disappearing. And the UK has always been a third rate economy when it comes to retraining adults and matching new opportunities with the skills of an indiginous workforce.

There are a couple of imperatives for Sunak. Can he help to create jobs for those leaving school and university so that their career and earning prospects are not permanently blighted? And can he provide real retraining for older people whose industries are in serious, secular decline?

The measure of Sunak is whether he is the Chancellor who uniquely cures the UK's high-skilled job creation sclerosis? Perhaps we will have an inkling tomorrow.