Without a long-term plan, Rishi Sunak risks wrecking Britain's economy

T he government’s response to Covid has been one of political brinkmanship. It dithered over the enforcement of a first, second and third lockdown – despite scientists warning that restrictions were necessary. It gave businesses little clarity about the continuation of the furlough scheme in the autumn, leading to a wave of redundancies. It informed teachers that schools would remain open through January, before abruptly U-turning on this assertion.

The same goes for the economic support it has offered to businesses affected by the third lockdown. Following Boris Johnson’s announcement of new restrictions across England, Chancellor Rishi Sunak announced a package of economic measures including £9,000 grants for retail, leisure and hospitality businesses forced to close. These grants will provide a margin of much-needed relief to businesses (especially because they are grants, rather than loans). But they still fall far short of what is needed to stabilise the economy and support people to comply with the new measures.

Many businesses have shouldered a huge amount of risk during the pandemic. They have taken on large debts, which they face having to pay off for years if they make it through the crisis. And there’s no certainty over whether the furlough scheme will continue beyond April, even if restrictions remain in place. While the chancellor has offered £4.6bn in support, Bank of England figures from December show firms face a £180bn drop in cashflow, a figure likely to rise as a result of the latest lockdown.

A £9,000 grant may keep the landlord from the door in the short term, but it’s unlikely to prevent some businesses owners from shutting up shop in the face of serious uncertainty. And the £594m that has been allocated to businesses outside the retail, leisure and hospitality sectors in these latest measures is a drop in the ocean – particularly for the many businesses that supply these sectors, such as manufacturers. For instance, while car showrooms will receive support because they’re classed as retailers, car manufacturers will be left out in the cold.

Although Sunak has said he will review the measures in the early March budget, this will be too late to give businesses and employers the certainty they need. To provide more certainty, he could start by guaranteeing that the furlough scheme will continue during any future restrictions that prevent businesses from opening.

Cash support for businesses should be about 10 times more generous to avoid them collapsing under a mountain of debt. This doesn’t mean that we should settle for a stream of government handouts to the private sector. Where risks are socialised, the public should share in the rewards. In countries such as Germany it is the norm for the state to take equity stakes in businesses in return for an injection of cash. This could be done in the UK through a national investment bank, or “Project Birch”, the government’s bailout plan for companies during the pandemic.

Ultimately, the future of UK businesses relies on the success of the government’s public health strategy. Sunak has been reportedly cautious of lockdowns for fear of their impact on the economy. This is mistaken. The sooner the virus is controlled, the sooner the economy can reopen, and the sooner we can escape this endless cycle of lockdown and release.

There are measures that Sunak could put in place now to help make the lockdown shorter and less painful. Many people face impossible choices between maintaining their family’s income and protecting others by self-isolating. If the government is serious about bringing down the R number, they should start by raising the UK’s woefully inadequate statutory sick pay, which stands at just £95.85 a week, and extending it to workers who aren’t currently eligible. And those who are instructed to self-isolate and can’t do their jobs should be paid the living wage for doing so.

Families need certainty, too. The eviction ban expires in just five days, putting renting families at risk of homelessness. Extraordinarily, the government plans to cut universal credit payments that many are relying on by £20 a week in April. These issues cannot wait.

Only by addressing these underlying issues will the government ensure this third lockdown is as effective as possible. Rather than using his March budget to firefight, the chancellor could set out a proper recovery plan. His challenge is to stabilise the economy while investing for the future. That should include an ambitious fiscal stimulus – the IPPR estimates £164bn is needed in the next financial year – to invest in measures to reach net-zero emissions, meet pledges to “level up”, and rebuild public services to avoid the NHS reaching breaking point in the future. From the IMF to the OECD, the economic consensus is clear: we can’t cut our way out of the crisis, no matter what the chancellor’s conservative instincts are.

Opting for half-measures and delaying the inevitable may help manage the lockdown sceptics within the Conservative party, but it is no way to manage public health or an economy. Instead, the chancellor must offer businesses and families the certainty they need to reach the light at the end of the tunnel.

• Carys Roberts is executive director of the Institute for Public Policy Research