Subsidise workers, not property speculators

UK chancellor Rishi Sunak seems to be trying to build for himself the image of a man who is not afraid to “tell it like it is” when the situation requires it. But his actions show that he is prepared to sacrifice long-term economic development for a short-term boost for his Conservative party.

Last week, in response to requests from various quarters that the Coronavirus Job Retention Scheme be extended from end-October to a time when the economy is strong enough to absorb more workers, Sunak said he would not want to see furloughed employees “trapped” in false beliefs that they can keep their jobs.

“It’s wrong to keep people trapped in a situation and pretend that there is always a job that they can go back to,” Sunak told the BBC.

The furlough scheme was introduced at the height of the pandemic and paid 80% of the wages of employees whose jobs were affected by the Covid-19 outbreak. Moreover, the government also helped most of the self-employed with a separate scheme – in total, around 11 million people benefited.

From August, the government is reducing the amount it is contributing to furloughed employees wages every month, and the scheme is due to end in October.

There have been calls for the scheme to be extended. The Liberal Democrats and the Scottish National Party have both spoken in favour of extending the furlough scheme, as has the Labour mayor of London, Sadiq Khan.

The Resolution Foundation think tank recently said more than four million people who had been put on the job retention scheme since it launched in April have still not returned to work, and they will likely face redundancy if the scheme does end in October.

Sunak’s new tone is a marked change from May, when he was telling the BBC that the job losses were heart-breaking. “What’s very clear to me is that the cost of not doing this for society, for our economy, for our country would be far higher, and I am simply not going to give up on all these people,” he said at the time in reference to extending the furlough scheme.

No longer heartbroken, the chancellor seems to have moved on and is now ready to put up with an increase in the number of unemployed people.

Contrast with house price support

He might be doing this because he hopes to succeed Boris Johnson as prime minister and therefore must pander to the more radical side of the Conservative voter base.

Such Conservatives would not look kindly on their “perks” being taken away while the government keeps supporting people who are not working – never mind that their jobs were destroyed by the Covid-19 pandemic.

Among these perks, the ever-rising house prices. The chancellor does not seem in a hurry to shut down the various money-wasting schemes that prop up property prices, such as Help to Buy.

On the contrary, by introducing the stamp duty holiday Sunak doubled down, creating another “mini-boom” in house prices, which hit a record high in July despite the Covid-19 crisis.

And yet, the chancellor has not said a word about the various support schemes for house prices “trapping” the housing industry and property owners in an unfair situation in which they will believe that home prices only ever go up. Does this mean he is bent on continued support for home prices?

Subsidies have pushed up property prices.

Various subsidies have pushed up property prices.
Photo by Jeremy Doorten from FreeImages

In the UK, many property owners use their homes as piggy banks, for instance by re-mortgaging in order to “release equity” to spend on things such as private school fees for children, or foreign holidays. They bet on house price appreciation allowing them to keep doing this.

It is a model that rewards the older voters, who are in the best position to reap the rewards of their assets’ price appreciation without any real effort. But it diverts resources away from more productive areas of the economy, as a lot of money gets “invested” in housing stock that is increasing in price.

The fact that Sunak is pulling the rug from under the workers’ feet while continuing to lavish the property sector with subsidies reinforces this damaging model. The chancellor could win the votes of “old” Conservative voters, but with the risk of hurting the productive side of the UK economy.