The Bank of England’s chief economist, Andy Haldane, has said the policy support that prevented UK unemployment from rising as high as 5 million during this year’s pandemic should be removed only once the risk to jobs has been reduced.
In an interview with the Guardian before the introduction of new tier 4 curbs for London and much of south-east England, Haldane said he was hopeful of a rapid bounce-back in activity thanks to the vaccine but it was not the time to remove the “insurance policy” that had so far spared Britain from a return to the mass joblessness of the 1980s.
The Threadneedle Street official said unemployment had been “public enemy number one” while he was a teenager in West Yorkshire in the early 1980s. “For me, many decades on, it remains public enemy number one, because of the devastating impact it has on people’s lives and their families’ lives.”
UK economic rebound came at a price – and there’s more to pay
Haldane said he estimated that the UK’s unemployment rate had picked up from less than 4% to more than 6% since the arrival of the pandemic but job losses had been less severe than the Bank’s early estimates.
“Policy has been tremendously important. A huge amount of insurance has been provided by the government and the Bank of England – supporting people’s jobs, supporting incomes, supporting businesses and supporting borrowing costs. Without that insurance the outcome for jobs, incomes and the economy would have been massively, massively worse.”
Haldane said without action the 25% collapse of the economy in the spring would have pushed up the unemployment rate by 10 percentage points. “Instead of 2-3 million unemployed we would be talking about 4-5 million,” he added.
“Policy insurance has been crucial and will remain crucial during that bridging period as we hopefully squeeze the risk of the virus out of the system and reduce the risk of losing jobs and businesses. We need to provide that bridge, that insurance policy, for as long as the risk of either or both those things remains high.”
Haldane said it was not for him to tell the chancellor, Rishi Sunak, what to do, but said the Bank would continue to provide support – which has taken the form of record low interest rates and money creation through the quantitative easing programme – for as long as it was needed.
Haldane has been the most upbeat of the nine members of the Bank’s monetary policy committee in recent months, but remained cautious about withdrawing stimulus. “The risks are still with us and the risks are still real,” he said.
“I think the right time to signal and to execute on that reduction in insurance is when you actually see the risks being reduced for people in terms of their jobs and for businesses in terms of their viability.”
Haldane said unemployment was a scourge that could leave long-lasting scars. “I saw it up close and personal in the 1980s but it is still very much visible now,” he added.
“If we are not careful those unemployment problems can become sticky. What we found from the 1980s experience is that they can become generational. It is passed down the generations and you have whole families without work.”
Important lessons had been learned from the experience of the 1980s, when the then government of Margaret Thatcher used high interest rates and austerity to tackle inflation. Overlaying a structural change in manufacturing with policy stringency was a “recipe for making a difficult situation harder still and translating into higher levels of unemployment than might otherwise have been the case”, Haldane said. “I am very pleased we have learned those lessons.”
He added that the textile mill opposite the terraced house where he grew up was now a boxing gym, and the factory that made lightbulbs and electric motors has been replaced by houses. “That, in a nutshell, is what happened to northern Britain when I was growing up. It was a wrenching transition,” he said.
“Rightly or wrongly, the manufacturing base is not what it was. A large number of the jobs at risk or lost are in the service sector, and within that in retailing or hospitality. I hope that will make it somewhat easier for those people to make the transition to other work.
“But a somewhat easier transition is still a transition and is already painful for a great many people. That’s why it is important help is provided to make that transition.’”
“Although this recession has hit all sectors to a degree, it has fallen disproportionately on younger workers, on less skilled workers including those in retail and hospitality, on women and on ehtnic minorities.
H says it can set back the prospects of a young person by “years if not decades” if have a lengthy spell of unemployment early in their working life. Hurts their income and makes it harder to get onto the first rung of the housing ladder.
“London stands out as the part of the country hardest hit by the downturn and is the part of the country that has recovered most slowly. That’s not the right type of levelling up. That’s levelling down.”
“We are still in a hole and the hole is still deep. We need to keep climbing out that hole through policy measures and the vaccine. But once we have climbed out – and we will – we mustn’t forget about long-term structural issues: what will give us good work at good pay.
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