Rishi says relax - but is the economy ready?

The chancellor is taking the stabilisers off the economy and allowing it to freewheel into a summer season.

Rishi Sunak has confirmed the end of furlough and has encouraged staff back to the office.

But is industry ready to be left to its own devices?

Consumers appear not to have the same level of confidence as the chancellor.

According to a recent YouGov survey 76pc of people want to bring back wearing masks in shops.

Half the people in England want to close nightclubs and 45pc want to bring back the rule of six.

So is the economy really ready for a return to laissez faire?

1. Labour shift must be addressed

Matthew Aldrich is an associate professor of economics at the University of East Anglia, specialising in the labour market.

He said the problems the economy is now facing were largely a result of the incredible way life and the economy changed overnight due to the pandemic and lockdown measures.

“The pandemic meant a very fast restructure of our economy,” he said. “Particularly thinking about services, retail and hospitality – things like that. They saw an immediate drop in demand for goods and services, and therefore a drop in demand for labour.”

While the furlough scheme temporarily protected people’s jobs in these industries, Dr Aldrich said, people have sought to change jobs – either for a better work-life balance, or for more job security.

This has led to shortages of workers in certain sectors and bosses competing for labour, but also had led to many people needing to retrain.

In addition to this, Dr Aldrich said the pandemic had “exacerbated but also highlighted a lot of inequality in our economy”.

He said this was similar to the explosion in short term contracts and the gig economy seen after the credit crunch.

“Policy did not keep up and offer those workers the same protections that we would hope and expect from our society,” he said.

“I think there is a risk that we are going to see some permanent changes that have been caused by the Covid pandemic on the labour market.

“And therefore, there’s a question for the government to make sure that policy and the protections in place keep up to support all workers.”

Mr Aldrich added the need for the economy to adapt to hybrid or flexible working could also pose a challenge.

Prime minister Boris Johnson and chancellor of the exchequer Rishi Sunak have both been contacted by NHS Test and Trace. (Image: PA Wire/PA Images)

2. Driver shortage must be addressed

Adam Searle is the director of Felixstowe-based haulage firm CP Transport.

He said the pandemic had been a boom time for people in haulage and logistics as online shopping sky-rocketed. But it has also exposed the industry’s systemic problems as the Road Haulage Association estimated there is currently a shortfall of 100,000 drivers.

“Obviously there’s a driver shortage and the supermarkets are pushing rates through the roof as they try to recruit,” he said.

“It’s just worsening a situation that has been brewing for 30 years. It’s getting worse and worse.”
Mr Searle said this means HGV driver’s rates have increased by 10-20% as firms seek to hold on to their staff.

He said: “Ultimately, some way the end consumer will end up paying for it because a tin of beans on their shelf or a sofa in their living room is going to cost more to get there.”

“When the bubble bursts, what’s going to happen to the industry? It’s easy putting rates up but you can’t take them down again would be difficult. Because we can’t reduce our driver’s wages and all of our overheads are going to stay up.”

And this does not seem to be a problem that will go away soon.

“We’re not going to fill 100,000 lorry driver gaps in the year, two years or even five years maybe,” he added.

3. Retail’s need for rates relief

Joshua Bamfield is the director of the Centre for Retail Research based in Norwich, and said that until the economy is truly reopened the government will have to support industry.

He said: “I think furlough is right to come to an end – it can’t go on forever and might be keeping people in jobs who otherwise wouldn’t have one.

“Having said that, research is showing that a lot of people still on furlough are in the travel industry.

Until foreign travel is more certain then that industry will need a deeper level of support than other sectors.

“Sooner rather than later government also needs to look at business rates. It was an issue before the pandemic and instead of waiting a couple of years for another budget to try and redress this issue.”

He added: “What’s clear among academics and forecasters like ourselves is that the government should not be looking at how it can recoup this debt. The economy needs to grow and recover before we start looking at rebalancing the books, or more damage will be done.”

Chris Perry of Swarm (Image: Swarm)

4. Skills and training funding leaves a lot to be desired

Chris Perry is the chief executive of Swarm Apprenticeships, a community interest company which works across Norfolk and Suffolk.

Mr Perry agreed that furlough had had its time, but said funding was needed for people gaining a level three qualification in the National Skills fund.

He explained: “Only a small proportion of training providers won the bids to deliver the level three adult funding and we know there is a significant need for more people to get funded professional level qualifications to upskill the business and accelerate the growth of SME’s.”

He added that Kickstart “has not really worked”, adding: “It failed to link properly with apprenticeships. In the sector we feel that the money was better served providing more support towards an apprentice salary for the first six months.

“If Kickstart is to continue then it needs to loosen the restrictions.

“Kickstart should also come with some funded mentoring and training so organisations like Swarm could make sure the new employee is covered in terms of safeguarding, development and have a chance of something more sustainable like an apprenticeship after the sixth month.”

Nick Attfield, director of properties at Adnams (Image: JAMES BEDFORD/ADNAMS)

5. VAT reductions should stay

Nick Attfield is the director of properties at Southwold-based brewery Adnams overseeing their nine managed properties and 35 tenanted pubs.

The hospitality industry, he said, had been among the hardest hit sectors of the economy throughout the pandemic and operators were now working to recoup their losses before government subsidies made life even harder.

“Reduced VAT, and business rates cessation, is allowing good operators in Suffolk and Norfolk to recover a lot of the losses that they’ve made over the last 18 months.

“If you like, during the last 18 months, we’ve been running our business on credit cards, and now we’re paying off the credit card. We’re running profitably, but are trying to recover effectively a year’s worth of losses.”

Mr Attfield added this would not necessarily be the case for city centre pubs or bars.

This, he said, was further complicated by problems recruiting within the hospitality industry.

“We haven’t recruited since 2019,” he said. “Because we were only open for such short periods in 2020 that everyone worked and then had their breaks in the lockdowns.

“Therefore, there’s a big gap to fill there. We need the staffing headroom to allow us to operate normally.”

Mr Attfield added that Brexit meant staff from the EU had left the UK and the pandemic had caused people to reassess their work-life balance and moved away from hospitality – an industry that often requires working evenings and weekends.

He added that the HGV driver shortage had impacted on Adnams.

“It’s food but it’s also all sorts of other things,” he said. “There are huge delays on fridges and there are huge delays on bits for ovens at the moment as well.

“It’s really frustrating and it’s holding us up.”