Economic costs

Leaked Government Report Claims That Vaccine Passports Would Fail to Stop Covid Transmission

A Government investigation into the potential impact of a vaccine passport scheme has concluded that the measure would have a negative impact in halting the transmission of Covid. The report has put forward the unintended consequence of those unwilling to comply with the mandate attending more poorly ventilated venues instead of larger, more open space ones. In addition, the report dwells on the economic damage of such a policy, acknowledging that businesses would need to fork out more money into policing the entrance combined with a decrease in the number of customers. The Telegraph has the story.

The Telegraph has seen an internal analysis of the economic and social impact of Covid-19 certification, written by the Department of Digital, Culture, Media and Sport (DCMS).

Across the 13 pages, marked “official sensitive” and dated from early September, are a series of concerns about how the policy would work and its knock-on implications.

One section of the impact assessment responds to whether the policy could have “any displacement effects to other types of venues not included for certification”.

The document reads: “There is potential displacement between live events venues and hospitality venues. A core concern in the sector is that certification could displace activity and business away from music venues to, say, pubs with music and late alcohol licences, etc. which could be counterintuitive and potentially counter-productive.”

It goes on to state: “Similarly, if certification displaces some fans from structured and well ventilated sports stadia, this could lead to them attending unstructured and poorly ventilated pubs instead, where they will have access to more alcohol than if there were in the stadia. Evidence from the Euros showed spikes in cases associated with pubs even when England were playing abroad.”

Worth reading in full.

One in 16 U.K. Businesses Could Close In Next Quarter

A million jobs are at risk due to the ending of lockdown support schemes, with a new study suggesting that one in 16 U.K. firms are poised to close permanently in the next quarter following more than a year of forced temporary closures. The Guardian has the story.

One in 16 firms say that they are now at risk of closure in the next quarter, the study by the LSE’s Programme on Innovation and Diffusion (POID) has found. While it marks a major rise in confidence since the worst depths of the pandemic in January, there are warnings that the risk to so many workers coincides with the planned end of the furlough jobs scheme and a cut to universal credit by £20 a week.

There are also concerns that some industries are still being hit disproportionately by the fallout from Covid, with the entertainment and travel industries still making heavier use of the furlough scheme than other sectors. The number of people being paid through the U.K. scheme stood at 1.9 million at the end of June and it is due to close at the end of next month.

Huge uncertainty remains over the economy’s direction in the next six months. While confidence has risen, there are warnings over complacency. Former Prime Minister Gordon Brown, who founded the Alliance for Full Employment group to promote jobs protection and work creation programmes, said “a new jobs crisis point is approaching as furlough ends”. …

Peter Lambert, one of the authors of the POID research, said the end of the furlough scheme would be “an inflection point” where the economy could go either way. He added: “I think there will probably need to be some continuation of support in specific sectors. My bet is there’ll be more targeted support, because unless the economy really, really picks up, there’s going to be lots of people still left in the lurch in specific sectors.”

There are also concerns over the impact on families switching from furlough support to universal credit, especially as the £20-a-week increase brought in at the start of the pandemic is to be withdrawn this autumn.

Worth reading in full.

£2.1 Billion Wasted on Useless PPE – Five Times Higher Than Official Estimate

Over the past year, the Government has wasted more than £2 billion on personal protective equipment (PPE) that could not be used in the NHS. The figure is five times higher than initial official estimates and still under-estimates the true cost. The Sunday Telegraph has the story.

Some 2.1 billion items of PPE have so far been deemed unfit to keep doctors and nurses safe in clinical settings – with 10,000 shipping containers-full still to be unpacked as of May this year, said the Commons Public Accounts Committee (PAC).

The amount of unusable kit is five times higher than the number estimated by the Department of Health and Social Care (DHSC) in January, said the select committee, which monitors public expenditure.

The wasted sum forms part of the estimated £372 billion spent by the U.K. on pandemic-containing measures which will expose taxpayers to “significant financial risks for decades to come”, the cross-party committee warned in two reports published on Sunday.

MPs say they “remain concerned that despite spending over £10 billion on supplies, the PPE stockpile is not fit for purpose” with potential levels of waste “unacceptably high”.

As of May this year, out of 32 billion items of PPE ordered by the DHSC, 11 billion had been distributed, while 12.6 billion pieces are on standby at a cost of around £6.7 million a week in storage, the PAC said.

Some 8.4 billion pieces on order from around the globe have still not arrived in the U.K.

For excess PPE that is suitable for medical use, MPs said they are concerned the Government is “yet to create any robust plans for repurposing and distributing this essential stock in a way which ensures value for money and protects staff and patients”.

A public inquiry scheduled to start next spring into the Government’s handling of the pandemic will not come swiftly enough to ensure lessons are learned, the PAC added.

Ministers also risk undermining public trust by failing to swiftly publish the full details of contracts awarded, the report said.

The PAC noted that details of three-quarters of the 1,644 contracts over £25,000 awarded up to the end of July last year were not made public within the 90-day target.

Worth reading in full.

Pub Takings on Match Days Massively Lower Than Pre-Lockdown Levels

Around 17 million pints would be sold in pubs on Sunday during the Euro 2020 final if it wasn’t for the continuation of social distancing restrictions. Instead, nearly 13 million are expected to be sold, according to the British Beer and Pub Association (BBPA), as pubs across the country struggle to break even. The Guardian has the story.

Billed as the closest thing to being in the stadium itself, sales in bars or pubs showing sport are usually 200-300% higher on big match days during a normal year. However, capacity constraints mean although sales during Euro 2020 are up about 60% on match days, that is only in comparison with poor takings over the past Covid-hit [lockdown-hit] year.

“We are seeing an uplift in drinks sales on match days but because of capacity constraints it is nowhere near as much as it would usually be,” said Kate Nicholls, the Chief Executive of industry trade body U.K. Hospitality. As a rule, pubs were only taking 70% of their usual sales which was not enough to break even, she said.

In Norwich, Dawn Hopkins said her pub, the Rose Inn, will be full, although at the moment that means just 30 customers. “We are obviously fully booked,” she said. “I’ve been turning away people for weeks who want to watch the football but social distancing and the need to be seated limits our capacity. I think everybody’s grateful to be trading again but it’s still very difficult.”

The BBPA estimates nearly 13 million pints will be sold on Sunday, with 7.1 million during the match itself. That total would be nearer 17 million but for Covid restrictions, which mean venues are at 50-60% of normal capacity.

Fuller’s, a pub owner in London and the south-east, said most of its 209 venues were fully booked on Sunday but it could have “taken a lot more” were it not for the “disappointing” restrictions. “It has brought people together though and pubs are the next best thing to being there,” the company added.

Greg Mulholland, of the Campaign for Pubs organisation, said the Euros had brought welcome extra trade but pubs were struggling, with table service challenging and costly. Some landlords said they had been warned by licensing officials they could be fined if fans got carried away, and he hoped the authorities took a “common-sense approach”.

Worth reading in full.

Up to 350,000 Young People Could Lose Their Jobs as Furlough Comes to an End

Young people have been the most reliant on furlough and will likely be the hardest hit as the scheme comes to an end, according to the Institute of Fiscal Studies (IFS). There are already 50,000 more unemployed people aged 19 to 24 compared to pre-lockdown levels, and the IFS says in a new report that a further 350,000 people in this age bracket may lose their jobs in the coming months as job support money dries up. The Telegraph has the story.

In a new research report, the IFS says the age group saw the biggest increase of any age group in the numbers not working any hours, including those who are furloughed. 

The number rose by 25%, or around 400,000 people, from the last quarter of 2019 to the first quarter of 2021 – a significantly higher increase than those seen in older age groups.

The vast majority of those jobs have, so far, been saved by the furlough scheme, with only 50,000 additional 19 to 24 year-olds without any job at all in early 2021 compared with pre-pandemic.

But this means the 19 to 24 year-old age group is especially vulnerable as the furlough scheme is wound down.

At the same time, unlike for older workers, earnings growth among younger employees (aged 19 to 34) who have continued to work has been lower than prior to the pandemic. 

This may not have large immediate consequences, but if this ground is not regained then the longer-term effects on their incomes will be significant, said the IFS.

Xiaowei Xu, a Senior Research Economist at IFS and co-author of the report, said: “Young adults have been especially likely to be furloughed during the crisis, though relatively few have completely lost their job.

“Many have responded to this by staying or moving back in with their parents – providing temporary protection for their living standards. 

“But we know that shocks early on in people’s careers can have negative effects on their future job prospects. Without effective support, there is a risk that young people today will bear the scars of the recession for years to come.”

It follows previous research by the IFS which found that young workers are twice as likely as older colleagues to have lost their jobs, although graduates were less than half as likely as those without degrees to have fallen out of work. 

By the autumn, the number of graduates in paid work had fallen seven per cent, a drop of about 800,000 people, but the number of non-graduates was down by 17%, or 1.5 million, showing the much more severe impact on those with less education.

Worth reading in full.

Lockdown Pushes Gap Online As Clothing Retailer Announces Closure of All of Its British Stores

Following 15 months of draconian lockdown restrictions, Gap has announced the closure of all its 81 stores in the U.K. and Ireland, with an estimated loss of over 1,000 jobs. The U.S. clothing retailer is also considering reducing store numbers in both France and Italy and blames “market dynamics” for massive losses last year. MailOnline has the story.

Phased closures will start in August and continue through to September, the U.S. chain revealed.

It comes after a year of coronavirus lockdowns battering the U.K. high street, with other popular chains including TopShop going under. …

[Gap said in a statement]: “In the United Kingdom and Europe, we are going to maintain our Gap online business.

“The e-commerce business continues to grow and we want to meet our customers where they are shopping. We’re becoming a digital-first business and we’re looking for a partner to help drive our online business.

“However, due to market dynamics in the United Kingdom and the Republic of Ireland, we shared with our team today that we are proposing to close all company-operated Gap Specialty and Gap Outlet stores in the United Kingdom and Republic of Ireland in a phased manner from the end of August through the end of September 2021.

“We are thoughtfully moving through the consultation process with our European team, and we will provide support and transition assistance for our colleagues as we look to wind down stores.” …

For the year from February 1st, 2020, Gap’s U.K. retail sales fell by 9.5% to £195.1 million. Its operating losses were at £40.7 million. …

Founded in 1969 and headquartered in San Francisco, the firm has struggled in recent years and like most retailers saw store footfall slump during the pandemic. …

It comes just months after high street giant Debenhams confirmed the last of its stores would close for the final time.

The department store launched a post-lockdown fire sale before the chain shuttered its stores, marking the end of a 242-year presence in Britain’s towns and cities.

The outlook for Britain’s high street is dire. More than 11,000 outlets permanently closed in 2020 and the Local Data Company expects that this will be followed by 18,000 more closures in 2021.

The MailOnline report is worth reading in full.

U.K. Economy Shrunk More Than Previously Thought in First Quarter Thanks to Third Lockdown

The Office for National Statistics (ONS) has revised its GDP figures for the first quarter to show that the economy shrunk more than was previously believed as the third lockdown hit hard. The MailOnline has the story.

Data published by the ONS showed that U.K. gross domestic product (GDP) is estimated to have decreased by 1.6% in the period between January and March. 

That is up slightly on the original estimate of a 1.5% reduction.

It means that the level of GDP now stands at 8.8% below where it was in the fourth quarter of 2019 before the coronavirus pandemic hit, revised from an initial estimate of 8.7%.        

Despite the economic dip in the first three months of 2021, household saving levels again returned to record highs. 

The household saving ratio – the estimate of the amount of money that households can put away – increased to 19.9% in the first quarter. 

That is the second highest ratio ever recorded and compares with 16.1% in the final three months of 2020…

The ONS said that household spending fell in the first quarter of this year as lockdown prevented families from spending money in restaurants and non-essential shops. 

Spending in restaurants and hotels dipped by 37.2% on the previous quarter.     

The ONS said that the dip in GDP was largely driven by contractions in the education, wholesale and retail sectors caused by the tightening of coronavirus curbs. 

The closure of schools and the return of pupils learning at home hit the economy particularly hard. 

Education output shrank by 14.7% in the first quarter of 2021 which “reflects the relatively low level of school attendance in January and February because of the closure of schools as part of the Government response to the coronavirus pandemic”.

Worth reading in full.

“Big Risk” of Inflation Spiralling Out of Control as Government Borrows Another £24 Billion in May

Government borrowing came in lower than estimated in May, but there is little else in the state of the country’s economy to be cheery about. Following more than a year of lockdowns and heavy borrowing, the national debt stands at £2.2 trillion and a former Chancellor has warned there is a big risk of inflation spiralling out of control. The MailOnline has the story.

The Government was in the red by £24.3 billion last month, down from £43.8 billion a year earlier at the height of the pandemic – and crucially below the Office for Budget Responsibility’s forecasts.

However, the figure was still the second highest on record for the month and £18.9 billion more than in May 2019 before the pandemic struck, while national debt now stands at a staggering £2.2 trillion.

The grim fiscal backdrop was highlighted as former Chancellor Ken Clarke warned that there is a “big risk” of inflation running out of control – and urged Mr Sunak to raise more revenue now to make the Government less vulnerable to a resulting spike in interest payments.  

Responding to the figures, Mr Sunak reiterated his pledge to “get the public finances on a sustainable footing”.

“That’s why at the Budget in March I set out the difficult but necessary steps we are taking to keep debt under control in the years to come,” he added.

Concerns over the rebounding economy overheating and causing an inflation spike have been intensifying after the headline rate surged ahead of expectations to hit 2.1% last month.

Graphic from the MailOnline.

In the U.S. it is also at worryingly high levels, as Joe Biden pours money into stimulating the economy. 

Mr Sunak has been wrestling with Boris Johnson over how to fund ambitious “levelling up” spending commitments and a new social care plan.

Downing Street has insisted that the “triple lock” on the state pension will stay in place, even though the warping effects of furlough could mean it rises by 6% this year.  

Number 10 also says the manifesto commitment not to raise income tax, national insurance or VAT in this parliament stands – even though the respected IFS think-tank says that makes it “extremely difficult” for the Chancellor to find ways of raising money.    

Worth reading in full.

Lockdowns Had a Large Negative Impact on Economic Activity in Chile

Some commentators maintain that lockdowns have little or no impact on the economy. They argue it is fear of the virus, rather than government restrictions per se, that causes people to stay at home and stop spending money.

Such commentators tend to rely on studies from the first half of 2020. Because there was a dramatic decline in mobility at the start of the pandemic – when people everywhere stayed at home out of fear – these studies typically find that lockdowns had a small effect on the economy. 

However, once the characteristics of the virus became better understood (e.g. that the death rate for those younger than 40 is extremely low), people in jurisdictions not under lockdown began venturing out again. As a result, the damaging effects of lockdown on the economy are only apparent when you examine several months of data.

In a study published in the Journal of Global Health, Chilean researchers examined the economic impact of localised lockdowns in Chile. They exploited variation in the timing and duration of lockdowns across 170 municipalities, comprising 89% of the country’s population.

As a measure of economic activity, the authors used the year-on-year change in monthly VAT receipts, which previous research has shown is strongly related to GDP. 

They began by plotting monthly VAT receipts in municipalities that were and were not under lockdown in May of 2020 (see chart below). The blue line corresponds to those that were, and the red line to those that were not.

The two series follow similar paths between 2014 and 2019. However, in 2020, the blue line falls substantially further than the red, indicating that lockdowns reduced economic activity over and above the effect of voluntary behavioural change. 

To gauge the impact of lockdowns more precisely, the authors ran a statistical model of year-on-year change in monthly VAT receipts, with days under lockdown as a predictor. The model controlled for a variety of factors, including both case and death numbers. 

They found that one month of lockdown reduced VAT receipts by 12.5%. Since municipalities without a lockdown saw VAT receipts fall by 15%, this means that lockdowns explain almost half the decline in economic activity. 

“Our estimates”, the authors note, “suggest that a three-to-four-month lockdown would reduce economic activity by approximately the same amount” as one year of the 2009 Great Recession. So much for the claim that lockdowns don’t harm the economy.

M&S’s Annual Profit Slumps 88% During Lockdowns and the Retailer Plans to Close More Stores

The economic disruption caused by numerous lockdowns has been deeply felt by Marks & Spencer (M&S), with the retailer’s full-year profit having slumped by 88%. This is largely due to a collapse in clothing sales, the recovery of which is likely to be hampered by the post-lockdown shift to “hybrid working“, where staff only visit the office some of the time. Despite this, the company says it has traded well in the early weeks of the 2021-22 year and that it believes profits will recover. Reuters has more.

M&S, which also sells upmarket food, made a pretax profit before one-off items of £50.3 million… in the year to April 3rd, down from the £403.1 million made in 2019-20.

The 137-year old group, one of the best-known names in British retail, said like-for-like clothing and homeware sales plunged 31.5%, damaged by multiple coronavirus lockdowns which shuttered stores.

Clothing and homeware sales in stores crashed 56.2%, partly offset by online growth of 53.9%.

In food, where space remained open during the crisis, like-for-like sales rose 1.3%.

On a statutory basis, M&S sank to a pretax loss of £209.4 million, versus a profit of £67.2 million in 2019-20.

All U.K. clothing retailers have been hit hard by the pandemic. Last month Primark… which does not trade online, reported a drop in annual profit of 90%. Next, … which has a huge online business, has shown greater resilience but its full-year profit still fell 53%.

Worth reading in full.

The damage to its profits has forced the retailer to commit to closing another 30 stores over the next 10 years. BBC News has the story.

M&S has already closed or relocated 59 main stores, as well as cutting 7,000 jobs across stores and management.

The chain has reported big losses for last year as the pandemic took its toll on clothing sales.

But food sales were up thanks to its Ocado tie-up, contributing to “a resilient financial performance in a year of disruption”…

The High Street stalwart currently has 254 full-line stores… It says that a number of them are in long-term decline and cannot justify future investment. 

About 30 stores will gradually close over the next decade, while another 80 will be moved to better locations or merged with nearby shops. 

The group will open 17 new or expanded main stores over the next two years, including a number of former Debenhams sites.

Also worth reading in full.