Long-term impact of no-deal Brexit ‘worse than Covid-19’

Leaving the European Union without a trade deal would have a bigger impact on the UK economy in the long term than the damage caused by Covid-19, the Bank of England governor has warned.

Speaking to MPs on the Treasury Select Committee, Andrew Bailey said that a no-deal Brexit would cause disruption to cross-border trade and damage the goodwill needed to build a future economic partnership.

If the UK fails to agree to a deal before the Brexit transition period expires at the end of December it will revert to World Trade Organisation tariffs and trade barriers with its biggest trading bloc.

The central bank governor acknowledged that the fallout from the pandemic and the second national lockdown in England was having a greater short-term impact on the economy.

But he argued that in the longer term, the economic cost of leaving without a deal would be larger than the cost of Covid.

“It takes a much longer period of time for what I call the real side of the economy to adjust to the change in openness and adjust to the change in the profile of trade,” Bailey said.

In September, an analysis by the London School of Economics and UK in a Changing Europe concluded that the long-term economic impact of a no-deal Brexit could be two or three times as large as that of the pandemic.

Should there be a tax on working from home?

Working from home has allowed millions of people to continue working during the Covid-19 pandemic. But not every job can be done remotely, and a new report argues that home-working should be taxed in order to help support people whose jobs are under threat.

Deutsche Bank strategist Luke Templeman proposed a tax of 5% of a worker’s salary, which would be paid by the employer. In cases where an employee is provided with a desk but chooses to work from home instead, the worker would pay the tax out of their salary for each day they work from home.

The report argues that those who can work from home receive direct and indirect benefits, including savings on travel, lunch and clothes, as well as greater job security, convenience and flexibility.

For the UK, the tax equates to just under £7 per day, based on a salary of £35,000.

The self-employed and those on low incomes would be excluded and the tax would only apply outside the times when the government advises people to work from home.

Research by Deutsche Bank has shown that, after the pandemic has passed, more than half of people who worked from home for the first time want to continue doing so for between two and three days a week.

“The sudden shift to working from home means that, for the first time in history, a big chunk of people have disconnected themselves from the face-to-face world yet are still leading a full economic life,” Templeman said.

“That means remote workers are contributing less to the infrastructure of the economy whilst still receiving its benefits.”

Income generated by the tax would be paid to people who can’t do their jobs from home, for example to support them while they retrain or to recognise essential workers on low wages who assume a greater Covid risk.

‘Real living wage’ for UK workers rises to £9.50 an hour

More than 250,000 people who work for an employer accredited with the Living Wage Foundation are set to get a pay rise.

Almost 7,000 employers across the UK have pledged to pay the rate recommended by the Living Wage Foundation to ensure all staff earn a wage that meets the real cost of living, and covers everyday needs. The “real Living Wage” rates are independently calculated based on what people need to live on.

The rates for 2020/21 have been announced as £9.50 an hour in the UK (a 20p increase) and £10.85 in London (10p increase).

The UK Government’s compulsory minimum, the National Living Wage, currently stands at £8.72 an hour for anyone over the age of 25.

A full-time worker paid the new £9.50 real Living Wage will receive over £1,500 in additional wages annually compared to the current Government minimum. For a full-time worker in London this figure rises to £4,000.

Over 800 additional employers have been accredited with the Living Wage Foundation since the start of the Covid-19 pandemic, including Tate and Lyle Sugars, Network Rail and Capital One.

“It has been the cleaners, security guards and catering staff who have kept our factories clean, safe and well-fed over the last six difficult months,” said Gerald Mason, senior vice president of Tate and Lyle Sugars. “We’re pleased to recognise their value and role in helping us feed the nation.”

UK inflation rises to 0.5%

The UK’s headline rate of inflation climbed to 0.5% last month as restaurants, pubs and cafes raised their prices following the end of the Eat Out to Help Out scheme.

Designed to support the catering sector after months of lockdown due to Covid-19, the discount meals scheme offered 50% off food and non-alcoholic drinks up to £10 during August. More than 100 million meals were bought through the scheme.

The Consumer Prices Index (CPI) began rising more quickly in September when the scheme came to an end, according to the latest report from the the Office for National Statistics (ONS).

In catering services, prices rose by 4.1% between August and September 2020, compared with a rise of 0.2% between the same two months in 2019.

Transport costs also went up in September as demand for second-hand cars increased.

The price of second-hand cars rose by 2.1% between August and September 2020, compared with a 1.4% fall between the same two months a year ago.

Despite the higher CPI, inflation remains below the Bank of England’s 2% target and analysts believe that the Monetary Policy Committee may decide on additional monetary stimulus measures next month to help boost the economy.

Covid-19 ‘bounce back’ loans could cost UK taxpayers £26bn

Up to 60% of borrowers may default on business loans provided through the UK Government’s Bounce Back Loan Scheme, the National Audit Office (NAO) has warned.

A new report by the spending watchdog says that the scheme “succeeded in quickly supporting small businesses” but the Government faces a potential loss of £15bn to £26bn through businesses not being able to repay the loans and fraud.

The Bounce Back Loan Scheme was set up to support smaller businesses during the Covid-19 pandemic. Loans are delivered through commercial lenders and small and medium-sized firms can borrow between £2,000 and up to 25% of their turnover, with a maximum loan of £50,000 available.

Demand has been greater than anticipated, with the total value of loans provided through the scheme now predicted to be £38bn to £48bn, up from an initial estimate of £18bn to £26bn.

However, the Bounce Back Loan Scheme has less strict eligibility criteria than other Covid-19 related business loan schemes, relying on businesses self-certifying application details with limited verification and no credit checks performed by lenders for existing customers.

This lower level of checks presents credit risks as it increases the likelihood of loans being made to businesses that will not be able to repay them, the NAO said.

What’s more, the Government’s 100% guarantee against the loans reduces lenders’ incentives to recover money from borrowers.

An earlier third-party review commissioned by the British Business Bank found that, while some risks can be mitigated, there remains a “very high” level of fraud risk, caused by self-certification, multiple applications, lack of legitimate business, impersonation and organised crime.

The full extent of losses, both credit and fraud, will emerge when the loans are due to start being repaid from 4 May 2021.

The NAO called for the Government to implement a thorough debt-recovery process with lenders and consider how it might better prevent fraud in any similar schemes in the future.

Almost 500,000 redundancies planned since start of pandemic

Employers in Britain were preparing to make 58,000 redundancies in August, taking the total to 498,000 for the first five months of the Covid-19 crisis.

Figures released to the BBC in response to a freedom of information request show that during August a total of 966 employers told the UK Government of plans to cut 20 or more jobs, compared with 214 last August.

Under legislation that applies in England, Scotland and Wales, employers must notify the Insolvency Service if they plan to make 20 or more workers redundant in any single “establishment” using a form called HR1.

The 58,000 positions at risk in August represents an improvement from both June and July, when employers planned to make 150,000 job cuts.

Following the record economic downturn earlier in the year as lockdown was imposed across the country, the UK economy recovered somewhat in the summer as employees were encouraged urged to return to the workplace and schemes such as Eat Out To Help Out enticed consumers to spend more.

“There was a sense of optimism in August, we were starting to see more spending and more activity, there were hopes for a quick recovery,” Rebecca McDonald, senior economist at the Joseph Rowntree Foundation think tank, told BBC News. “That seems a lot less likely now.”

The high numbers for June and July may also have been partly caused by firms initiating redundancy processes ahead of the end of the furlough scheme on 31 October.

According to official data from the Office for National Statistics (ONS), employers made 156,000 redundancies from May to July, up from 107,000 in the previous three-month period.

UK mortgage approvals reach 13-year high

Lenders approved 84,700 mortgages for UK home purchases in August, according to new data from the Bank of England.

Approvals climbed to the highest level since October 2007, just before the global financial crisis, and were well above the 66,200 average of the three years to 2019.

A combination of pent-up demand being released post-lockdown and the UK Government’s stamp duty holiday, which began in July, are thought to be behind the mini-boom in the housing market. Chancellor Rishi Sunak has increased the stamp duty threshold to £500,000 until the end of March 2021.

However, the total number of mortgage approvals for the year to date, at 418,000, is still 20% lower than the 524,000 recorded in the same period in 2019.

Net mortgage borrowing totalled £3.1bn in August, up from £2.9bn in July. Mortgage borrowing reached a low of £0.5bn in April, and is still below the average of £4.2bn in the six months to February 2020.

Meanwhile, net consumer credit borrowing remained positive in August at £0.3bn, following a £1.1bn increase in July. These increases followed net repayments of £3.9bn per month, on average, between March and June.

UK unemployment reaches highest level for two years

The economic fallout from the coronavirus pandemic is continuing to emerge in the UK, with new figures showing that unemployment has risen to its highest level for two years.

In the three months to July the UK unemployment rate grew to 4.1%, representing about 1.4 million people out of work, according to the Office for National Statistics (ONS). This is 104,000 more than a year earlier and 62,000 more than the previous quarter.

Young people were particularly hard hit, with the biggest drop in employment seen among those aged 16 to 24.

The monthly report also shows that redundancies increased by 58,000 on the year and 48,000 on the quarter to 156,000 — the fastest rise since the financial crisis.

It comes as businesses are preparing for the end of the furlough scheme, which has helped 9.6 million people retain their jobs during lockdown and prevented a sharper rise in unemployment so far.

Under the Coronavirus Job Retention Scheme, the UK Government initially paid 80% of people’s wages. This was reduced to 70% at the start of September, with employers expected to make up the remainder of pay, and the scheme is scheduled to end altogether on 31 October.

Chancellor Rishi Sunak has ruled out extending the scheme past the end of next month.

Commenting on the latest figures, ONS director of economic statistics Darren Morgan said that as parts of the economy reopened in July, fewer workers were on furlough and there was a rise in average hours worked.

However, he added, “with the number of employees on the payroll down again in August and both unemployment and redundancies sharply up in July, it is clear that coronavirus is still having a big impact on the world of work.”

UK manufacturing industry calls for furlough scheme to be extended

Manufacturers have urged the UK Government to extend its Covid-19 furlough scheme, warning that the country risks being left in the “slow lane” behind major competitors in recovering from the pandemic.

Industry association Make UK wants to see the Coronavirus Job Retention Scheme continued beyond October for critical, strategic industrial sectors.

It highlighted the aerospace and automotive sectors as being particularly in need of an extension.

“These sectors are at the cutting edge of technologies which will be vital to growth sectors of the future employing many highly skilled, well paid people across the UK,” the organisation said.

“New analysis of official data by Make UK backs this up with the two sectors being the largest investors in research & development, accounting for more than two thirds of the total spend (36.4%). This is worth £5.9bn to the UK economy.”

Germany, Belgium, Australia and France have all extended or introduced new wage support schemes.

“The protection of key skills should be a strategic national priority as this will be the first building block in getting the economy up and running,” argued Stephen Phipson, chief executive of Make UK.

The industry group’s latest Manufacturing Monitor survey provides some signs of an improvement in business conditions.

Almost a fifth of the 226 companies surveyed between 24 August and 1 September are now at full operating levels (17.6%) while a further 28% are running at between three quarters and full capacity.

By the start of next year, over a quarter (27%) expect to be at full capacity and a further third (35.4%) expect to be between three quarters and full capacity.

Housing price slowdown in Q1 2019

The Halifax survey of British house price growth shows a slowdown in the first quarter of 2019 in annual terms and a subdued outlook, according to Reuters.

Uncertainty about Brexit and high property prices were cited as key factors behind the trend. Compared to the same period in 2018, prices rose by 2.6% whereas the three months to February showed a 2.8% rise.

A Reuters poll of economists indicated an annual rise of 2.3% could be expected for the first quarter. A recent Nationwide mortgage lender survey found house prices had increased somewhat.

The housing market in London is particularly weak, with Brexit uncertainty poised to have a particularly strong impact in the capital. Shortly before the 2016 referendum house prices were rising by around 10% per year.

Halifax says that in March, in monthly terms prices were falling by 1.6% after a 6.0% increase in February. Halifax’s index has tended to show a more marked variance than other polls in recent times.