Economic impact of coronavirus: gaps in support and economic analysis Contents
This is the third report of our inquiry into the economic impact of coronavirus. The first report focused on those who had fallen through gaps in support and asked the Government to mitigate those gaps. The second report focused on the medium-term challenges facing the UK economy, such as combating long-term unemployment and dealing with high levels of corporate debt.
Gaps in Support
Since we last reported on the economic impact of coronavirus, the Government has extended both the Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme (SEISS) to the end of April 2021. We believe that the Government was right to do so.
The first version of the SEISS scheme had to be rolled out at speed in the spring of 2020. Partly because of that haste, there were ‘hard edges’ which meant that some people lost out. Though regrettable this is understandable. However, there is little justification for not having addressed them eleven months later.
We recognise that it may not have been possible for the Government to help all those who have fallen through the cracks of the support schemes. However, we are disappointed that the Government has so far shown no inclination to expand or provide alternatives to the SEISS, which is providing a vital life-line to many but is not available to all those whom we believe should qualify. We recommend that the Government look at other models of support, including those developed by the devolved administrations with a view to extending support to people who require support and who do not currently qualify.
We make the following detailed recommendations for extending eligibility:
- We strongly urge the Treasury to use the data in the tax returns for 2019–20 to help the newly self-employed who missed out from previous rounds of support.
- We recommend that the Treasury investigate ways to support limited company directors. By conspicuously leaving out a large proportion of limited company directors from support altogether, we are concerned that the Government is sending out the wrong message—that it is not adequately supporting entrepreneurs and employers, who have suffered significantly from a lack of support.
- We note that there are a large number of freelancers who continue to miss out on support. In order to help some of this group, we believe that the Government should reconsider the 50 per cent limit in the eligibility criteria for the fourth tranche of the SEISS grant so that those who derive less than half of their income through self-employment can receive some level of support.
- We reiterate our recommendation from our first report of this inquiry that the Government must tackle the cliff edge that exists in the design of the SEISS by removing the £50,000 cap and allowing those with profits just over this cap access to financial support up to the total monthly support cap of £2,500 (as for salaried employees). There is a striking inconsistency between the way the Government is treating employees earning more than £50,000 a year who are eligible for the CJRS and those who are self-employed and have trading profits above £50,000 a year, meaning that they do not currently meet the eligibility criteria for the SEISS. This is unfair. We believe the Government ought not to disadvantage the self-employed in this way.
While death rates from coronavirus are high, the rationale for Government decisions on social restrictions is well understood by the public. As the vaccine roll-out proceeds and death rates fall, Government decisions on whether or not to lift restrictions will become more finely balanced. We believe that economic analysis and modelling is essential to inform those decisions alongside evidence of the other necessary infrastructure such as test, trace and isolate, and responses to new variants, being comprehensive and in place to mitigate against the need for a further lockdown. We make the following recommendations:
- After almost a year of restrictions on social and economic activity, the general public and the business sector need to be confident that the Government has as clear and as certain a route out of the crisis as possible. On 27 January, the Prime Minister told the House that when Parliament returns from recess in the week commencing 22 February, the Government will set out a “plan for taking the country out of lockdown.” In this plan, the Government should set out the criteria for how and when it will lift restrictions—this could be in terms of the prevalence of the virus and the R rate. We recognise that this would be a contingent plan, based on the stages only being activated after milestones are met, with the Government providing the maximum possible certainty. Alongside this plan, the Treasury should also provide the combined economic and epidemiological modelling to support it, demonstrating how the plan best optimises health and economic outcomes.
- We strongly urge the Treasury to provide rigorous analysis of future policy choices which quantifies the harms and benefits of each of the plausible range of alternative policies. It has always been a good practice to publish an impact assessment for every measure the Government proposes.
- The Treasury should be more transparent about the economic analysis which it undertakes to inform Government decisions in the fight against coronavirus and to publish any such analysis in a timely manner. The House should not be asked to take a view on proposals which have far-reaching consequences for the general population, such as those involving restrictions on social interaction, education, movement and work, without the support of appropriate and comprehensive economic analysis.
GDP as a measure of the impact of the coronavirus: international comparisons
We note that comparisons with other countries’ Gross Domestic Product (GDP) may be affected by differing measurement methodologies at this time. We therefore caution against over-reliance on the UK’s GDP performance in comparison to other countries, as a measure of the impact of coronavirus on the economy. We recommend that the Treasury and the Office for Budget Responsibility provide a commentary at the time of the Budget on GDP measurement issues and the implications that these measurement issues have for comparisons between the UK and other countries.