Don’t panic about the UK’s high debt

Last week the Prime Minister focused on ‘build, build, build’. For the Chancellor, it was ‘jobs, jobs, jobs’ on Wednesday as he outlined an ambitious and interventionist suite of measures to prevent a rise in unemployment. These measures are estimated by the Treasury to be worth up to £30 billion.

The last time the UK had high unemployment was in the early 1980s. The labour market was very different then – it was often described as sclerotic, with high unemployment also the consequence of a necessary restructuring of the economy. Today, however, the labour market is much more flexible and the deep recession and threat to jobs is from an economic shock. That is why the Chancellor should feel confident that his measures will be effective in limiting the rise in unemployment. His focus is now on ensuring the recovery continues, as well as specific measures aimed at the young and sectors in difficulty.

The threat to jobs is likely to be seen in three waves: first, as the Government’s existing schemes are phased out; second, as the vaccine gap prevents a number of sectors from returning to normal, with social distancing in place and with people reluctant to venture out and spend; and a third possible wave as firms emerge from this crisis with high debt that forces them to deleverage and not invest and recruit staff.