Coronavirus, Scottish Economy

Supporting people through the economic impact of Coronavirus

The additional £330 billion made available by the Chancellor yesterday was a further attempt to put businesses on a surer footing. The announcement by the Prime Minister, asking people to refrain from visiting pubs, restaurants and entertainment venues has put a lot of hospitality businesses facing severe financial hardship, and it’s likely that substantial job losses will result unless steps are put in place to prevent this. This blog looks at the repercussions of this and what could be done.

Both from an economic and societal point of view, there is a clear case for acting to prevent job losses now.

The wage bill is a major component of any firms cost base. With no customers, and no income, it is obvious why firms will seek to reduce this cost. This may not always involve lay-offs – we’ve seen some firms enforcing unpaid leave on their staff for example. Indeed, laying off staff will have costs for a business too, from the possibility of needing to pay redundancy to the costs of having to recruit in the future when the virus has started to recede. This is before factoring in the non-financial costs, such as the emotional burden of letting staff go. Many business owners will know their staff personally and feel a responsibility to them and their families.

For viable businesses, who will be able to weather this storm if they can reduce costs in the short-term (and the business rate holiday will also help with this), there is a strong case for helping them to retain staff. What the government will be looking at is whether they can step in and cover a significant proportion of staff costs to help this happen. Ideally this would be up front rather than a reimbursement, but certainty that the money will be recoverable in some way would be helpful sooner rather than later.  The challenge for policy makers in all of this is making tough calls about what a viable business is, and whether loan or grant support is appropriate. However, at a time like this, it may be wise to err on the side of too much support rather than too little.

The alternative is that people who lose their jobs, and cannot quickly find another, go to the social security system for financial support. This, of course, means that the government will be providing money directly to them at some point regardless, as well as needing to pay for administration costs that will come with transitioning many thousands of people into a Universal Credit system that is already failing to keep up with the planned roll-out.

There is also an issue with the amounts paid through Universal Credit. For many people, the amounts available through Universal Credit will far lower than their costs, particularly for those in the private rented sector with high housing costs (the amounts paid out through the housing component are set at below average rents). Indeed, part of the rationale for setting working age benefit rates lower than those given to pensioners is so that people will be more encouraged to find work. With that option much reduced, there is a clear argument here for boosting money paid out to working age people for the period of this crisis. For people currently on those benefits and the legacy benefits that preceded Universal Credit, the challenge of living on such an extremely low income is all the more challenging with food banks struggling with stock levels and supermarkets (usually the cheaper than local convenience stores) running low on basic essentials.

Ideally, the social security system will be the last resort for people, and the government can find a way to keep people on firms’ payroll. But knowing that the amounts available through Universal Credit are decent enough to allow people to adequately cover their basic living expenses will help with the psychological impact of losing a job at a time of such heighted uncertainty, as well as helping people who are required to self-isolate but have no way of making an income during that time (some self-employed and those on contracts for example). Our blog yesterday showed that many people do not have savings high enough to cover normal income, even for one month. These actions will be an investment in people, public health and the economy. It’s only right that such investments are made now to try and limit possible long-term damage.


The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.