UK set to scrap $107 billion lifeline for poorest families

Bloomberg

The UK government is ending two of its pandemic-era safety net programs that pumped almost 80 billion pounds ($107 billion) into the economy, a move that campaigners say will leave more working families
in poverty and widen the gap between the rich and the poor.
Over the next week, furlough support for wages that helped 8.9 million workers at peak and a temporary increase in benefits for about 6 million people both are due to finish. Together, they softened the blow of successive lockdowns and prevented a spike in unemployment.
Ending the two programs piles further pressure on household finances, with growth slowing and inflation picking up. Those trends have left many rank-and-file lawmakers in Prime Minister Boris Johnson’s Conservative Party critical of reducing the universal credit uplift in particular.
Chancellor of the Exchequer Rishi Sunak introduced both measures as temporary relief when lockdowns shut vast portions of the economy and left millions unable to work. He’s planning to announce grants for people struggling with energy costs in the coming days, a program worth up to 500 million pounds, a person familiar with the program said. He has also stressed the need to control the ballooning deficit.
“With the recovery well under way, and more than 1 million job vacancies, now is the right time for the scheme to draw to a close,” Sunak said in a statement. “But that in no way means the end of our support. Our Plan for Jobs is helping people into work and making sure they have the skills needed for the jobs of the future.”
The risk is the toxic combination of lower incomes and higher costs will widen income inequality and fan social tensions. Households also are bracing for a 12% rise in the cap on energy bills and a substantial tax increase in April next year. Campaign groups say more people will fall below the poverty line or struggle to afford enough to eat.
Removing the safety net before the crisis has passed puts the UK in danger of repeating the errors of the last recession by pivoting to austerity too early and choking off growth. It’s also starting to eat away at the confidence of consumers, who have helped keep the economy afloat during a tumultuous few years in the UK.
The government on September 30 winds up its furlough program, which paid as much as 80% of wages to those whose workplaces shut during coronavirus lockdowns. About 1 million workers are likely to be on the plan when it comes to an end, mainly older people in lower-income groups. All told, the program supported more than 11.5 million jobs at various times and cost the Treasury 68.5 billion pounds so far.
On October 6, the Treasury is scrapping a temporary increase in universal credit of 20 pounds a week. Removing that will leave some families around 1,000 pounds a year worse off. While the weekly sum seems small, for 1.2 million universal credit claimants, it represents a fifth of their entitlement, according to the Institute for Fiscal Studies.

Of the two, McDonald says she’s more worried about the cut to Universal Credit because of the number of people who depend on it. About 5 million households receive universal credit, and almost all of them benefit from the temporary increase, which has cost 9 billion pounds so far. Extending it would cost about 6 billion pounds a year and bring the total bill for UC to 74 billion pounds, according to the IFS.
“It’s the wrong thing to do,” she said. “Ending the furlough scheme will have some negative consequences but feels like the right thing to do given the need for it was temporary.”
Predictions from economists on the damage to the labour market by the end of furlough differ, highlighting the uncertain nature of the months ahead.
The Bank of England isn’t predicting an increase in unemployment when furlough ends, said George Buckley, chief UK and euro-area economist at Nomura. “We do.”
London was especially hard hit by the pandemic, with more people put out of work than in other regions and more struggling to find employment, an IFS paper shows. The capital accounted for 16% of nationwide redundancies during the crisis, up from 12% before. Only 44% of Londoners who lost their jobs found work again after six months, significantly less than the 58% figure for the rest of the country.
The twin cuts has those providing aid to lower income groups bracing for an increase in demand. One of those is Naomi Russell, who set up a distribution point to food banks from her garage at her home in North London during the pandemic and sends out about 40 car loads every week of food and household goods to those in need.
“Taking away of the extra 20 pounds, and the end of furlough scheme — that’s going to be a big one,” Russell said. “Plus we’re going into winter, people have higher fuel bills. Food’s gone up. We are expecting it to be not good between now and Christmas.”